Shares of residential solar company SunPower (SPWR +0.00%) have fallen 84% from their early-2021 high as investors sell both growth stocks and companies that benefit from low interest rates. It hasn't helped that the company is in energy, which fared well over that time because solar energy stocks trade more like growth stocks.
But there are some reasons to be optimistic for the company, given both operating trends and solar incentives in the U.S. And I think it's time to buy this growth stock again.
OTC: SPWR
Key Data Points
Tailwinds behind solar energy
In 2010, just 4% of the new electric power generating capacity in the U.S. was solar. In the first three quarters of 2022, that had jumped to 45%. And growth may not stop there.
As part of the Inflation Reduction Act (IRA) passed in 2022, there were a number of solar incentives, including increased tax incentives for residential solar installations. For most of the last decade, the investment tax credit for installing solar on your roof was 30% of the cost, but that fell to 26% starting in 2020 and would step down over time. The IRA increased the incentive to 30% in 2023 until at least 2032.
Tax incentives are great, but the fundamental driver of solar adoption is cost-effectiveness. Solar panels are no longer falling in price by 20% per year, but efficiency and quality are improving and more solar systems are being paired with EV chargers and energy storage. For a company like SunPower, which installs the home energy system, this is a big win.
Image source: Getty Images.
SunPower's momentum
A growing market for solar energy is great, but it's been really hard for companies to make money, including SunPower. Over the last few years, SunPower has sold off its asset ownership business, commercial operations, and even solar panel manufacturing in order to focus solely on designing and installing residential solar, energy storage, and EV charging. And the strategy is working.
In Q3 2022, new customers were 23,100, up 63% from a year ago; revenue was up 67% to $470 million on a non-GAAP basis; and adjusted EBITDA per customer rose to $2,100 ($1,700 in Q1). For the full year, management expects $90 million to $110 million in adjusted EBITDA and is aiming to grow the customer base at 2 times the market's growth rate through 2025.
$100 million in EBITDA may not seem impressive given the company's $3 billion market cap, but think about the momentum. The number of customers is growing rapidly, the amount of money SunPower makes from each customer is increasing, and we haven't even seen a significant share of energy storage, which is only included in 17% of systems today. The future looks bright for SunPower.
What to keep an eye on in 2023
Everything looks to be heading in the right direction for SunPower, but it is hard to decipher what's sustainable and what's an impact of the pandemic ending and people spending stimulus money to upgrade homes.
When fourth-quarter earnings and 2023 guidance are released, look for continued growth on an installation basis and SunPower's ability to grow revenue and EBITDA per customer. This would be welcome news for a company that's been scrambling to keep up with falling costs for the last decade.
