SPWR stock: SunPower goes back to owners
SunPower (NASDAQ:SPWR) is a great way to support the planet. But over time it has been a bad investment.
This is because solar power is like open source software. The main benefits go to the users. They are moving towards the electricity grid, where electricity prices fall, margins increase and supply becomes more and more flexible.
The reason is deflation. Today’s panels provide more energy at a lower cost than the panels of a few years ago. If you bought panels ten years ago, under a Power Purchase Agreement (PPA), they can hurt the value of your home today.
But as prices continue to fall, below the cost of fossil fuels, and grid electricity becomes less reliable, that could change.
That’s SunPower’s hope, and it’s still cheap action. At its current price of nearly $ 24 per share, SPWR stock has a market cap of just $ 4.1 billion. It sells for only 9 times the profit. He finally delivers a return to TotalEnergies (NYSE:TTE), the French oil company which took a majority stake almost ten years ago.
Solar power has its own version of Moore’s Law, which has led to deflation in computing for over half a century. This is Swanson’s Law, named after SunPower founder Richard Swanson. He argues that prices drop 20% for every doubling of shipping volume.
With solar now cheaper than fossil fuels, SunPower believes it can finally see the light of the benefits of Swanson’s Law.
The turn towards the houses
SunPower panels today cost around $ 1.50 per watt. They are efficient and durable, but cost twice as much as the competition. This is why SunPower turned to the residential market in its search for profit. The costs of the panels can be factored into a larger sale, which includes installation. In the utility market, pricing issues and inefficient panels can be easily replaced once written off.
SunPower announced on Oct. 7 the purchase of Blue Raven, a residential panel installer active in the Pacific Northwest and Mid-Atlantic, for $ 165 million in cash. The agreement gives SunPower geographic diversity.
SunPower notes that only 3 million homes are now equipped with solar panels, but that number is expected to reach 100 million. Given the lower cost of today’s panels, they are now more cost effective for homeowners. They can be replaced once paid for with cheaper panels.
What about the shareholders?
As it advances in residential solar, SunPower sells its commercial and industrial operations. He previously spun manufacturing in Maxeon solar technologies (NASDAQ:MAXN). He also sells a stake in Enphase Energy (NASDAQ:ENPH), which manufactures solar inverters that transform direct current from panels into alternating current used in homes.
Blue Raven’s announcement is expected to push the title up. Stocks have been falling steadily since February, after an interest rate-induced hike that took them from a single figure to a high of nearly $ 50. The new trading range, between $ 20 and $ 25, means a loss for those who bought in February, but a 100% gain for those who have been on the stock market for a year.
The SunPower of tomorrow looks like Sunrun (NYSE:CLASSES), a rival in residential solar. Sunrun could increase its sales by 50% this year, to $ 1.5 billion. But the financing costs mean it typically results in losses, around $ 65 million in the first two quarters. Sunrun obtains financing cash flow to compensate. Think of it as a solar bank.
The result on the SPWR stock
Solar panels are cheaper than coal. The market will develop. SunPower will be one of them.
In recent years, big gains have gone to aftermarket manufacturers, like Enphase, which serve all solar markets. Utilities that purchase solar power, such as Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B), through its energy division, benefited from lower costs.
With panels becoming more profitable for homeowners, SPWR’s stock is hoping to finally make it into the winner’s column.
At the time of publication, Dana Blankenhorn does not hold any positions with the companies mentioned in this article. The views expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.
Dana blankenhorn has been a financial and technology journalist since 1978. He is the author of Living with Moore’s Law: Past, Present and Future available in the Amazon Kindle store. Write to him at [email protected] or tweet it on @danablankenhorn. He writes a Substack newsletter, Facing the future, which covers technology, markets and politics.