I have been looking at this SunPower stock over the past while. They specialize in providing solar services, mainly distributing solar panels residentially and commercially. As well, SunPower will lease solar panels and systems to customers with exceptional warranties.
With the company, they had recently announced that they are going to split into two different companies. The new company, named Maxeon Solar, is focused on creating highly efficient solar panels at lower costs and as well as creating new innovative solar technology.
SunPower will currently continue to distribute its solar energy services instead of manufacturing its solar panel, systems, and technology.
The exciting thing is that investors get a stake in Maxeon Solar once the company is public.
So, what makes SunPower stand out from the rest of its competitors?
There are several components of SunPower’s competitive advantage:
- SunPower offers a 25-year warranty that will cover 100% of costs, including repair or replacement costs.
- SunPower guarantees a highly efficient panel that will last 25 years. The company states that the panel will lose no more than 8% of its original power.
- There are three options to purchase a solar panel.
- Purchase the system directly
- Loan: where you own the solar system.
- Lease: where SunPower owns the system, and the buyer can rent it.
- Reliable solar power generates more electricity than any conventional panels.
- Panels have a lifetime exceeding 25 years.
- Solar panels are flexible for any roof.
These are considerable advantages to SunPower. Offering high quality and efficient solar panels has earned them a reputable name within the solar energy industry.
It is essential to look at what Maxeon Solar has to offer and its advantages.
Maxeon Solar will no doubt play a significant role in helping gain incredibly more market share for SunPower. Both companies aim to attract customers from markets globally and continue to expand. In hopes of doing this, SunPower can see an increase in demand for its products and generate more revenue for both companies.
Producing SunPower’s highly efficient solar panels and other various technology is undoubtedly the main objective of the company. But it will be the lower manufacturing costs and scalability that will benefit SunPower in the long run. They currently have a very low gross margin for their business, which is frightening to me. We will discuss this further in the article. However, by producing highly efficient solar technology at a lower cost, SunPower could lower prices to consumers to obtain more market share.
Maxeon will also focus on the residential and commercial spaces for their target markets, primarily in both North America and in Southeast Asia. If successful, Tom Werner (CEO of SunPower) hopes that they can double Maxeon’s market share.
According to CSIMarket, after the first quarter of 2020, SunPower has a 37.94% market share within its industry. With that said, it could be made clear that there is an increase in competitors in the industry, which has caused the company to reduce its prices to compete. Of course, as a result, this would have decreased their margins, which they disclosed in their annual SEC Filing for 2019.
The overall market share seems quite promising, but it’s also an estimate, and I’m sure if you look on other websites or view other sources, it will be different. However, I do particularly believe that SunPower is one of the top companies in its industry.
As well, SunPower, in my opinion, would have more market share within the U.S. solar industry rather than within the global market share. In contrast, a company like JinkoSolar might control more market share globally.
If we turn our heads to which company has the most efficient solar panel, it would be SunPower. SunPower’s Maxeon 3 solar panel has an efficiency of 22.6%, leading competitors LG and Panasonic.
Ultimately, it seems that SunPower may lead the market in terms of efficiency and quality, but I still feel that there is room to expand its market share in both the U.S. and globally, which is something they realize as well.
As for competitors, there are very many to list. However, when doing my research on SunPower, I decided I would focus solely on two competitors, those being Sunrun and Tesla, to see how they stack against SunPower.
For Sunrun, they offer affordable energy and solar systems and panels at low costs with similar purchase options as SunPower has. Although these solar technologies may not be as efficient as SunPower’s is, they are more affordable to households, not looking to spend mass amounts of money for this type of energy.
As well, with Sunrun, they are focused on catering to their customers and solving their problems. They will work with households on creating specific designs of panels and pricing configurations so that everyone can use solar.
Sunrun uses different solar partnerships, mainly subcontractors, that allow the company to scale rapidly, enter new markets quicker, lower incremental costs over the long-term, and reach more of current markets.
When looking at Tesla, they offer 10-25-year warranties on their products that will cover most, if not all, costs. It states that it also has the lowest cost/watt in the entire industry, which will turn some heads.
One of the most notable solar products that Tesla has is its Powerwall. The significant features with this home battery are that is can store up to 7 days of continuous power, meaning it can run for seven days whenever there is a power outage. This marks as a highly efficient battery available to those in the market.
Another interesting note is that Tesla will compensate customers if their systems produce less energy than guaranteed over a specified time. An added benefit to using Tesla for solar services.
These are fierce competitors to SunPower, based on what they offer as well. Although SunPower may be looking to expand into the solar battery market, Tesla already has a quality product in place, not to mention quality solar panels from their partnership with Panasonic. Panasonic as well produces highly efficient solar panels.
In our last article, based on Genius Brands International Incorporated, I elected not to look at the company’s financial statements or ratios in-depth. However, I decided I would analyze them for SunPower, so here is what I found:
SunPower’s financials, well, I don’t consider them significant.
To start, their cost of goods sold (COGS) is way too high for my liking. Across the industry, from what I have seen, companies have a gross margin of 12-19%. For SunPower, I only calculated 7%. That is not sustainable over the long run, so I looked through the company’s 10-k and found that they included shipping and handling costs and warranty reserves in their COGS. This could be a particular reason as to why it is so low, but either way, it still does not erase the fact that low of a margin is terrible.
One thing we should keep in mind is that Maxeon Solar should be able to lower these costs. So, if margins can be increased, they will start to break even and might even break a profit.
Now, SunPower hasn’t been profitable since 2015 and has endured some tremendous losses; however, in 2019, they were close to being profitable, which can leave investors hopeful that the company will be profitable this year or next.
The current ratio is 1.45, which signifies that the company should be able to pay off its short-term obligations; however, it has significant long-term debt. They seem as if they were able to pay off this debt over time, but they have been borrowing money and issuing shares around the same rate.
Over the past several years, they have been continuously using cash for their operating activities, signifying they have been taking on new projects and increasing inventory. However, do they have too much inventory at the current moment? It’s hard to answer. If they do, then surely it might be a good idea to take on less, but if the demand is high, then it’s justifiable.
For their days’ sales outstanding, I calculated that it takes 45 days to collect their credit sales. Now, when compared to the industry, well, it is excellent and on-par. From my analysis, it fluctuates between companies and isn’t necessarily steady across the industry. Based on my opinion, it doesn’t seem terrible, but in 2018 it was around 38 days.
I calculated the days payable outstanding, which was 93 days in 2019 compared to 59 days in 2018. It seems that it’s taking the company longer to pay off their debt, which is concerning to me, as they do have a significant amount of debt and are paying and borrowing similar amounts. It could be something to watch out. Related to the days’ sales outstanding, the payables outstanding fluctuates across the industry. Either way, it generally seems high to me and is a red flag.
The days’ inventory outstanding to my calculations was roughly 76 days in 2019 and 56 days in 2018. Signifying that inventory is not moving quickly or they are holding too much, which may be considered another red flag. This would go in accordance with the higher levels of inventory the company has been purchasing. Either demand is lower than their projections, or they need perpetual inventory to sell, there’s just something I don’t like about these numbers.
A very, and I mean very, striking number is the company’s debt-to-equity ratio. It’s at 5,089.93. Yeah, well, that’s quite high. Since the company primarily finances through debt, this number is much too high for my suitability.
The management at SunPower seems relatively decent. The company itself is focused on building a brighter, more sustainable future, has strong beliefs on education, and building strong customer relationships with their existing and potential customers. SunPower also focuses on meeting or exceeding shareholder’s expectations. Since many of the executive’s salaries are tied to performance, I do not doubt that they want the company to perform well.
Speaking of salaries, from what I read in their proxy based on April 3, 2020, the executives themselves are not necessarily making millions of dollars. Some of them are making $600,000 or less. This may be a particularly good sign as they realize that the company has tight cash flows and increases to management salaries will make it tighter. However, performance is vital, so those salaries are eventually due to go up.
To speak a little more about management, some executives have been around for several years, while some are relatively new to the company. CEO Tom Werner has been around for 17 years. Whether you see this being good or bad, I will leave that up to you. However, I think it may be particularly useful based on the experience he brings and make changes to become profitable once again.
This company has some upside to it. The quality and efficiency it provides towards its solar products are superior. It leads the industry in some categories and is undoubtedly a well-established brand.
What conflicts me the most is the financials. I don’t particularly like how the company has not been profitable since 2015, that they are unable to earn positive cash flows from their operating activities, and their low gross margins. They continuously acquire and hold off on paying their obligations. I understand that with taking on specific projects, you need cash and won’t always have it on hand. The same goes for being profitable. It may take several years for companies to become profitable once again; however, these ratios and financial figures are not enticing enough to me.
The same thing goes with the competition. Several competitors offer lower prices for their solar energy products. Not everyone is looking to obtain a highly efficient solar system or solar panels; they look for value with their money instead. Having a company like Maxeon Solar will probably provide benefits to SunPower, especially when cutting down on margins, in which I hope they lower the prices for their products in addition to this. I feel as if it is the best way to obtain more customers and grow the company.
Entering the global market as well will be difficult, but not impossible. It’s about starting slowly, in this case, Southeast Asia, and working your way up to other countries and continents.
If the company cannot grow its market share or make the necessary changes to build for success in the future, its competitors will take over.
I give SunPower’s stock a C-.
I hope the company can turn things around and generate better positive cash flows and be profitable.
Maybe I am entirely wrong, and the company’s stock will instantly rise.
Much of the information of the company (outside of the articles linked) and their financial statements have been taken from their 10-k statements. Click here to access their annual reports.
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Disclaimer: I am not a financial advisor. You are trading at your own risk and should consult a financial advisor for any investment decisions. Do your own due diligence when considering investing, and this information is for education/informational purposes only.