SunPower (SPWR +0.00%) continues to transform its business in 2021, partly as a result of new technologies coming out and partly because it's no longer in the business of building solar panels after spinning off its panel manufacturing to Maxeon Solar Technologies. That makes any given quarter difficult to assess because the changes taking place don't take hold overnight.
As we've seen before, there were some good trends for SunPower and some weak points for the business. Overall, I think this is a solar energy stock that has a lot of potential, but the stock's performance will depend on how the company executes its growth strategy.
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The high-level picture for SunPower
Beating or missing analyst estimates will move a stock short-term, but long-term investors should focus on where a company is trending over time. Here are the highlights I think are most important from SunPower's second-quarter results.
- SunPower's revenue was up 41.9% to $308.9 million on the back of a recovery in residential solar sales.
- Over the last year, adjusted EBITDA rose from negative $4 million to positive $22 million in the second quarter of 2021.
- Net recourse debt dropped from $561 million a year ago to $283 million at the end of Q2 2021.
- The balance sheet has improved because SunPower has sold some assets and paid off debt, and the company still holds 3.5 million shares of Enphase Energy (ENPH 2.66%), worth about $684 million.
Taken in total, SunPower's cash flow, as approximated by adjusted EBITDA, is improving, the balance sheet is getting better, and the company still holds a large stake in Enphase that it could cash out anytime it would like. The business is moving in the right direction; it just may not be doing so as quickly as investors hoped.
The biggest question over the next few years is whether or not SunPower is investing in the right areas for growth and if both top- and bottom-line numbers will continue improving or not.
Where SunPower is growing
After SunPower spun off its manufacturing unit Maxeon Solar Technologies, the company had to decide where it was going to focus its attention. The utility-scale development business had been sold off or shut down, and now SunPower seemed focused on residential and light commercial solar (RLC), and what it calls commercial and industrial solar (C&I). But it's now clear that RLC, and not C&I, is going to be the focus. And the reason comes down to money.
From a volume standpoint, RLC is much bigger than C&I for SunPower. Megawatts (MW) deployed in RLC during the second quarter were up 43% to 107 MW, which does include a bounce coming out of the pandemic. C&I volume was 18 MW, up 20% from a year ago. The growth numbers are skewed because Q2 2020 was impacted by the pandemic, but the trend of more focus and growth heading to RLC holds over time.
Gross margin for RLC was 23.5% compared to 2.2% for the C&I segment. C&I has long struggled with low margins, in part because commercial and industrial customers pay electrical utility bills differently than residential customers, normally paying for both total maximum capacity (MW) deployed as well the quantity of usage (MW-hrs). It's no surprise given the operating backdrop and these margins that SunPower is focusing investment more on the RLC business and less on C&I.
On the RLC side of the business, SunPower has spent years building tools that will make it easy to get a quote for a solar installation, connect with an installer, and then track solar production. Energy storage was added with SunVault, which is still being scaled across the country. Another addition last quarter was the Wallbox electric vehicle partnership that also brings EV charging into the equation. Energy storage and EV chargers could add both incremental revenue and margin for RLC solar installations while putting in place the components needed to become a smart-home company. And ultimately that's what SunPower would like to be.
Is SunPower falling behind the competition?
One of the reasons investors may not be terribly impressed with SunPower's results is because competitors are growing even more quickly. Here are some highlights from recent earnings reports from the second quarter of 2021:
- SolarEdge (SEDG +5.18%) revenue was up 45% from a year ago to $480.1 million, and gross margin was 32.5%.
- Enphase Energy's revenue was up 152% in the quarter to $316.1 million, and gross margin was 40.4%.
- Sunrun (RUN +3.99%) recently reported earnings and expects 30% installation growth this year.
SolarEdge and Enphase are component suppliers, so they're in a different segment of the market than SunPower, but they're inevitably compared.
What I think investors need to focus on long-term is whether or not SunPower can maintain or grow its market share as the solar industry grows, or whether it's losing ground. One quarter isn't going to tell us that trend, so I'm skeptical we can draw too many conclusions from Sunpower's quarter versus competitors'.
The bottom line
SunPower continues to grow its install base, expand its offerings to customers, and build tools that small, local installers can use to grow their business in solar, energy storage, EV charging, and eventually the smart home. I think that could be a winning strategy long-term. Results will be lumpy, but right now the company is headed in the right direction -- and if that continues, the stock could be a great performer for investors.
