SunPower (SPWR -8.41%) has gone through a number of major strategic changes over the last five years, and announced another notable move on Tuesday. The company is acquiring Blue Raven Solar for $165 million, scooping up a residential solar installer to bolster its position in the Northeast and bring installation services in-house.
The commercial and industrial business may also be on the chopping block for SunPower, which could mean a sale or some other "alternative". If SunPower gets out of commercial and industrial solar and goes all-in on residential solar, it'll be another major shift for the solar energy stock long-term.
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Why commercial solar is on the chopping block
Management said this week that third-quarter 2021 results will be below the bottom end of guidance ranges because of delays and higher costs in commercial and industrial solar projects. This is nothing new for SunPower, which has seen its commercial and industrial segment generate low-single-digit gross margins for years. And it doesn't seem like the trend is getting any better.
These projects are often very competitive, and the financial justification can be weaker than that of residential projects because commercial customers pay lower per kW-hr rates and more fixed costs through demand charges. To focus entirely on residential solar, management may just want to sell the business and move on.
Betting on residential solar
It's not surprising that SunPower is betting on residential solar, but how it's going about the change is interesting. SunPower has long worked through a network of dealers, providing products and services to those partners.
In recent years, it has expanded its digital tools with online quotes available for customers, and called itself an asset-light solar company because it didn't "own the trucks." That may be changing now if SunPower continues to buy installers across the country.
In a sense, SunPower is trying to become Sunrun (RUN 2.19%), the country's leading residential solar installer. And if you look at their market capitalizations, it makes sense that SunPower sees an opportunity in that market.
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SunPower also probably sees Blue Raven as a reasonable value. The company cost $165 million, but generated $136 million in revenue over the last twelve months and had a 10%+ EBITDA margin. The price of 1.2 times sales is well below SunPower and Sunrun's valuations, as you can see above.
What's not entirely clear is whether SunPower is going to start acquiring a network of installers around the country or continue to leverage a dealer network. Blue Raven was strategic because it grows SunPower's presence in markets where it didn't have much of a foothold, but we could see more acquisitions in the future.
If SunPower does decide to acquire its way into the residential solar market, it has a large dealer network to choose from. That could be a move the company makes in order to grow in residential solar.
The future for SunPower
It will be worth watching what this acquisition means for SunPower's business long-term. We may see it exit the commercial and industrial solar businesses soon, which could be a positive for margins and growth rates. But right now the company is straddling a dealer network of installers and acquiring an installation company to have in-house. It may be tough to have both while keeping everyone happy.
What we do know is that SunPower wants to go all-in on residential solar. For now, the market sees that as a positive sign, and we'll see if a more focused company means better growth and margins for SunPower long-term.
