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What to Look For in SunPower's Earnings Report

By Travis Hoium - Feb 16, 2016 at 12:05PM

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There could be some major tailwinds coming for this solar giant.

Image source: SunPower.

Solar efficiency leader SunPower (SPWR -5.29%) reports earnings after the market closes on Wednesday, and it'll tell us a lot about the direction of the solar industry in 2016. We've already heard SolarCity give disappointing results and guidance, but SunPower has exposure to utility-scale solar, which should be a big beneficiary of the recent solar investment tax credit (ITC) extension.

SunPower should be well positioned for profitable growth for the next few years, but we'll be looking to hear about just how much growth and how much profit.

Image source: SunPower.

The ITC extension impact
SunPower should be one of the biggest beneficiaries of the ITC extension because it's one of the country's largest utility-scale solar developers. These large-scale projects were going to be negatively affected far more than residential solar by the loss of subsidies. But how big the benefit will be and when it will be realized is still uncertain.

Before the ITC extension, the plan for SunPower and the rest of the industry was to build as many projects by the end of 2016 as possible. Then they would shift to other markets in 2017. The extension takes away that urgency, but it could help the company financially. Instead of rushing to complete projects this year to qualify for tax credits, management can push out less profitable projects and complete the most profitable projects in 2016.  

We could also hear some bullish comments about market conditions beyond 2016. It's from 2017 to 2020 that SunPower should be able to grow and expand margins. Look for comments around that growth potential on the conference call.

Are margins going to meet or beat expectations?
SunPower's own non-GAAP guidance for Q4 2015 was for $1.25 billion-$1.30 billion in revenue, gross margin of 28%-29%, and EBITDA of $300 million-$325 million. Those are huge numbers and will be driven by dropdowns to the yieldco 8point3 Energy Partners. Hitting, or even beating, those numbers will be key short term.  

Long term, investors will be keyed in on any potential changes to 2016 guidance. I mentioned that the ITC should be a big growth catalyst and we could see changes to anticipated asset sales and/or margins in 2016 and beyond. If profitability is expected to grow going forward, that would be great news for the stock.

Is manufacturing expansion picking up pace?
SunPower is planning to grow solar panel production from less than 1.2 GW in 2015 to over 4 GW of solar panels in 2019. To accomplish that, it will have to execute flawlessly on manufacturing plans.

The first expansion is known as Fab 4 and it's a new line ramping up high-efficiency solar cells today. These cells should be less expensive and higher-efficiency than most of its other production, but it's not reinventing the wheel. Watch to make sure that the plant has begun pumping out product and that it'll be running full steam by later this year.

The riskier growth plan is what SunPower calls Performance Series solar panels. These are lower-efficiency panels made with commodity solar cells bonded together in a low-cost manufacturing method. Or that's what management promised when the product was announced late in 2015. Performance Series isn't expected to be a big growth driver in 2016, but by 2019, it's expected to be nearly 2 GW in production. Executing on plans to build out that manufacturing will be key.

SunPower's growth curve has just begun
With plans to more than triple solar panel production by 2019, SunPower has big growth plans ahead. The ITC extension should be a tailwind for that growth, starting as early as 2016. Keep an eye on what management says about the future on Wednesday, because that might have more impact on how investors should think of the company than the numbers it reports for 2015.

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