SunPower (SPWR -4.84%) has been through a series of major changes over the last 10 years, but it's likely the next ten will be a little quieter. In 2013, the company was still expanding its high-efficiency manufacturing technology and was a major player in utility-scale solar power plant development. Now, those businesses have been sold off and this is a focused residential solar company.
Over the next 10 years, I expect SunPower to continue scaling its current residential solar offerings both across the country and into newer offerings like energy storage and smart-home solutions.
Laying the groundwork
Let's start with what the company's operations look like today. In the recently reported fourth-quarter 2022 results, SunPower said it added nearly 24,000 customers, achieving record customer growth for the third consecutive quarter, and drove 43% revenue growth to $497 million. For the full year, SunPower added 83,000 customers and grew revenue 53% to $1.7 billion. After years of losses, SunPower did report net income based on generally accepted accounting principles (GAAP) of $8 million and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $36 million for the fourth quarter, and GAAP net income of $56 million and adjusted EBITDA of $95 million for the full year 2022.
Management said it's generating $2,300 in adjusted EBITDA per customer before platform investment, up $600 from the start of the year. One change recently has been a planned expansion of lease offerings following the passage of the Inflation Reduction Act (IRA) and Department of Treasury guidance related to solar tax credits, which will be a tailwind for all of the solar industry. The leasing business grew 55% in the fourth quarter, and lease and loan bookings jumped 81% for the year.
SunPower's balance sheet is better than it's been in years, too. Net recourse debt was just $48 million to enter 2023, and management said it repaid $425 million in debt during January. This will give SunPower more flexibility over the long term.
Image source: Getty Images.
What to expect
The foundation of residential solar installations is solid and growing, but there are ways SunPower can leverage the business. Energy storage is likely to be a growing piece of SunPower's business, which will expand revenue and margin per installation. In the fourth quarter, just 17% of bookings included storage, so it's still a small part of the business.
Electric vehicle (EV) charging will be a growing piece of the business, too, integrating into smart-home solutions. SunPower has a partnership with charging company Wallbox and recently announced an agreement with General Motors (GM -0.91%) to be a preferred EV charger installer and the exclusive residential solar partner for GM.
As rooftop solar and electric vehicles become more common, the control systems, or "brains," of the system become more important. That's the role SunPower plays in these installations, and having partners like GM and most of the new home builders in the U.S. is a great place to start.
This strategy isn't without risks though. SunPower has struggled to generate a profit in recent years as high fixed costs weren't offset by weak installation margins. And competition comes from both national installers and small, regional installers who can be low-cost and very nimble. It's a tough competitive environment and execution risk is the key factor to watch.
Tailwinds for residential solar
SunPower isn't cheap based on the company's $57.9 million of non-GAAP net income in 2022 and a current market cap of $2.8 billion. But with the IRA now passed and some visibility to the tax structure for solar over the next decade, this is a company that can grow profitably in the booming solar energy sector.
Ten years from now, I expect this to be a much larger, more diversified energy business, offering complete smart-energy solutions to clean-energy homes. If it can succeed doing that, this will be a great investment.
