SunPower (SPWR, Financial) reported not so impressive results for the second quarter of 2014. SunPower’s revenue, net income, and earnings declined 4.4%, 30.10%, and 42% respectively in the second quarter as the company installed fewer solar plants comparatively. However, it has witnessed strong demand for its industry leading high-efficiency solutions across the board and has added assets to its hold co/yield co strategy that should further assist the company to gain traction in the market for its acquired projects as this strategy will build on projects for the company until they are completed.
Strong traction in the power plant business
SunPower now looks good with many new and existing projects under its pipelines for both residential and commercial businesses that should drive its growth going forward. SPWR has backed its residential projects with two strategic financings of late. It has first signed its second back-leveraged agreement with Hannon Armstrong that should strengthen its cash flow for its leases and more importantly it has announced a $200 million solar loan agreement with Admirals Bank that will bring financial flexibility for its residential customers.
In addition, SunPower has also into the strategic agreement with Google (NASDAQ:GOOGL) that will provide fund worth of $250 million in residential solar leases. SunPower has witnessed nearly 38% increase in the U.S residential solar market.
On the other side its commercial projects pipelines in the North America has exceeded $1 billion for its new and existing clients. SunPower further sees strong demand for in commercial projects in the second half of the year. Moreover, the company is also planning to expand its storage capacity in commercial segment in Australia by the beginning of the next year. Sun Power has exclusive storage model in place for its residential channel in Australian market.
Meanwhile, SunPower has also been selected as the exclusive solar provider for the industry-leading global automotive companies for their customers in the U.S market. SunPower is all set to offer their customers the energy savings and power management capabilities with its energy service solutions. However, SunPower hasn’t disclosed the name of these automotive companies yet and will formally announce this relationship in the near future.
In addition, the company has strategically made two acquisitions of late and has quite leveraged its technology portfolio that will not only drive growth for the company in future but also will lead a reduction in both DG and ground-mount balance of system cost. Furthermore, SunPower has backed its technology portfolios with the launch of its KB Home's pilot program that quite efficiently integrate the battery storage.
SunPower will facilitate solar systems with KB in approximately 150 home communities and has solid plans to further expand its storage program to other communities in the fourth quarter of calendar year 2014. Besides, SunPower has witnessed strong progress with its average selling price strategy as it was stable in all the markets and it expects this trend to continue for the remaining half of the year.
SunPower has also started construction at its Quinto project and has added a 60 megawatt project for its Xcel Energy in Colorado. It has also started with the second project at the Nellis Air Force Base. On the global front, SunPower has laid down initial groundwork for more than 85 megawatt projects in South Africa and completed 33 megawatts of projects in South Africa in the reported quarter. Also it is planning to invigorate its 70 megawatt merchant plant in Chile and the construction for the same is expected to begin in the fourth quarter of 2014.
With respect to Asia pacific countries the company has expanded its footprint in Japan with a 29 megawatt power plant supply agreement and entered into an agreement to supply Tokyo-based independent power producer Nangoku with solar panels for a solar plant on Kyushu, the third largest island of Japan. Also it has strengthened its relationship in China as it has entered into a strategic partnership with three of the local manufacturers in the region.
Each of these manufacturers have unique capabilities in terms of technology, manufacturing, finance and utility industry expertise. Moreover, its JV is now well underway with more than 115 megawatts of projects in development and construction in Inner Mongolia and SunPower is expanding our partnership with the TZ Group to other regions in China. The company has shipped nearly 15 megawatts of C7 during the last quarter.
Strategic initiatives to add value to its growth
SunPower is strategically expanding Fab 4 capacity with full capacity is expected to reach approximately 1.8 gigawatts by the end of 2017 that would lead to increase nearly 40% in its total capacity as against the current capacity. Moreover, the company is expected to start production for almost 50 megawatts in the advancing of the fiscal year 2015 and another 250 megawatts for fiscal 2016 that should certainly drive its growth and accelerate its margins.
According to Bloomberg New Energy Finance, SunPower is expected to increase its capacity as global demand for the solar panel market is continuously increasing. Bloomberg has forecasted the total industry shipment to increase approximately 29 percent to about 52 gigawatts this year. Also the chief executive officer Tom Werner has said that SunPower could fetch great sales of 1.2 gigawatts to 1.3 gigawatts of panels this year on the back of strong production at most of its factories.
In addition, the company remains focused on driving enhancement that would possibly help SunPower delivering higher return, while maintaining effectiveness in its equipment and higher output. Moreover, the company is also evaluating locations for the capacity expansions beyond its Fab 4 and plans to update its investors at the official close of the fiscal year 2014.
Revenue and earnings expectations
SunPower expects revenue for the third quarter 2014 in the range of $600 million to $650 million, whereas the analysts are estimating revenue of $658 million for the third quarter. SunPower also expects its gross margin to remain in the range of 17% to 19% of the revenue and its net income per diluted share to range between $0.15 and $0.35. The total megawatts that are to be recognized during the quarter are estimated to be in the range of 325 to 360 megawatts.
Conclusion
SunPower currently trades at the trailing P/E multiple of 23.34 and forward P/E multiple of 21.21 shares reasonable valuation for the company and states tremendous growth opportunity for the stock in the future. Moreover, its PEG ratio stands just at 0.88 for the next five years that also indicates certain amount of growth to its stock. Also, the stock looks good on the performance matrix as its profit and operating profit margins are 8.41% and 9.26% respectively. Moreover, the return on equity or ROE looks solid with 11.37% for the quarter. Moreover, the analysts have forecasted CAGR of 30.00%, which is almost double than the average industry CAGR of 15.64% signifies striking growth going forward for the company. The stock is a good pick for the long-term return.
