SunPower (NASDAQ:SPWR) is once again drawing attention. But should that make investors reconsider SunPower stock?
Shares have jumped more than 30% just in August, after it announced net income of $19.5 million, 11 cents per share, on revenue of $353 million for the quarter ending in June.
Hopes are especially high for the spin-off of Maxeon (NASDAQ:MAXN), which will represent the brand outside the U.S. Maxeon is a venture with China’s Tianjin Zhonghuan Semiconductor, which had put itself up for sale in January.
Totally Not Profitable
Total has helped make the Chinese deal happen as well, putting another $30 million into SunPower in February.
SunPower has mostly been a dry hole for Total, although the public relations benefit has been considerable. Total is a global oil company worth over $103 billion. Before the oil glut hit in March it was worth 40% more.
Total’s financial backing gave SunPower a low cost of capital that helped it gain market share in the 2010s. Prices fell faster than costs under immense Chinese competition. Only now, with Total down and the Maxeon deal, does the 2011 investment look like it might pay off.
Why Hopes Are High
Solar costs are falling below those of fossil fuels. Cheap microinverters from Enphase Energy (NASDAQ:ENPH), which has a strategic partnership with Maxeon, will let it make another run at the residential market.
Residential solar was a big deal in the early 2010s. Solar leases had people pre-paying for power at high prices to justify the installation of panels. But the numbers didn’t work. Attention then turned to utility-scaled installations, where costs could be spread across more panels. Utility companies would buy the power and, later, the power plants.
SunPower has been preparing for the new residential market since 2018, when it sold its microinverter unit to Enphase. Later that year it teamed up with Hannon Armstrong to create SunPower Capital, which can finance home systems. Early in 2019 it introduced a design studio that let homeowners get estimates quickly. The TZS deal gives it access to low-cost Chinese manufacturing, at a cost of 29% of Maxeon’s equity. It also gives Maxeon the latest Chinese technology, like dual-facing panels for utility-sized installations.
The result is a vertically integrated company that can address all solar markets. Residential dealers can design, manufacture, finance, and build-out solar installations profitably. Key competitors like Sunrun (NYSE:RUN) (which just announced that it will acquire Vivint Solar (NASDAQ:VSLR)) are both up sharply in 2020.
SunPower will go after commercial roofs directly. It claims to have a $3 billion pipeline in this area, which includes department stores like Target (NYSE:TGT) and Macy’s (NYSE:M). The June quarter report indicates the result can be profitable. New direct deals are already being signed.
The Bottom Line For SunPower Stock
Hopes are high for solar entering a new era.
Solar companies can now install integrated systems whose costs compare favorably with those of fossil fuels. As costs continue to decline, this should mean consistent profits.
Investors are being told they’re getting in on the ground floor of the new era. But experienced investors have seen this ground floor before, and it often leads to the basement. Amid all the happy talk, analysts note that SunPower sales for the second quarter were down 27% from a year earlier, and earnings before income taxes, depreciation and amortization (EBITDA) were negative.
But hope springs eternal. The hope now is that SunPower has the right combination of technology and partners to grow profitably.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at email@example.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.