SunPower Corporation: Growth Surges

Home solar company SunPower (NASDAQ:SPWR) recently reported earnings for its fiscal 2022 fourth quarter which saw revenue come in at $497.3 million, a 43% increase over the year-ago quarter to close off a year which saw the company realize total revenue of $1.74 billion. SunPower stock increasingly looks like good value against a current market cap of $2.84 billion, a price-to-sales ratio of 1.6x, and what should be a growth of at least 30% for the 2023 fiscal year. This comes after a sustained period where animal spirits had got ahead of themselves and the commons traded at a material premium to growth that's now running hot. Indeed, SunPower's price-to-sales ratio was just north of 9x during the pandemic.

The company has failed to take part in the broad year-to-date stock market rally catalyzed by a possible dovish pivot by the Fed. This has likely come on the back of continued bearish angst around rising Fed Funds rate and historical unprofitability with a short base now at 20.5%. I've previously been neutral on taking a position in SunPower on the back of continued losses and what was then too high a valuation to pay. However, the company is increasingly putting forward a comprehensive long-term investment case built on the sustained uptake of home solar across the US.

Revenue Beats As New Customers Ramp Up

SunPower's fiscal 2022 fourth quarter earnings saw revenue come in at $497.3 million, a beat by $16.4 million on consensus estimates and growth of 43% over the year-ago quarter. This came ahead of the year-over-year growth rate for the fourth quarter of fiscal 2021 with the company adding 24,000 new customers during its most recent quarter to take its total customers to 83,100. This was above prior guidance for year-end customers to be in the 73,000 to 80,000 range.

GAAP gross profit came in at $104.6 million on the back of gross margins that increased by 370 basis points to reach 21% from 17.3% in the year-ago comp. Gross profit was essentially 2x higher than a gross profit of $51.1 million in the year-ago period but flat on a sequential basis. The expansion of gross margin was driven by the continued pass-along of higher input costs to customers with greater pricing power exerted by SunPower on the back of rising demand.

Fourth quarter net income of $7.6 million fell from a net income of $20.2 million in the year-ago quarter due to exceptional one-time items in the year-ago period. Underlying profitability was still somewhat mixed with negative cash from operations at $11.6 million, up from negative cash flows of $5.3 million in the prior third quarter and from $2.4 million in the year-ago period.

The Green Transition Is Being Turbocharged

Adjusted EBITDA continues to move up and came in at $95 million for the year with the fourth quarter contributing $36 million to this, up from a fourth quarter contribution of $7.7 million in the year-ago comp. Business unit cash generation was positive at $41 million in the quarter, driven higher by a continued upward ramp in adjusted EBITDA per customer before other investments. This reached $2,300 per customer during the quarter, up by 35% from the first quarter. The improved overall cash position meant the company exited the quarter with $377 million cash on hand with net debt at year-end of $38.8 million.

SunPower is guiding for adjusted EBITDA per customer before platform investments to come in at $2,450 to $2,900 for the full year 2023. This year should also see total customers grow to between 90,000 and 110,000 with management expecting this to drive an overall adjusted EBITDA for the year of at least $125 million. Critically, SunPower has moved to the profitability part of its longer-term story as demand for home solar continues to ramp up. There will likely never be a better time to be a solar company as SunPower moves to form a continually profitable direct play on the growth of US solar.

US government subsidies, the energy crisis, and Russia's war in Ukraine have supercharged the transition to green energy and now all form drivers of customer growth for SunPower. However, macroeconomic uncertainty will likely continue to pose a near-term headwind to an expansion of its valuation multiple. But as it has dropped to its lowest level in years just as revenue ramps up provides a reason to be bullish. I think anxiety around a Fed Funds rate still rising will drive near-term returns even as SunPower's growth surges on the back of new customer adds. I'm leaning towards starting a position later this year and will wait for a few more quarters of earnings to see whether the current growth momentum is maintained.