SunPower Aims for Above-Market Growth in 2023

We maintain our $17 fair value estimate for SunPower following fourth-quarter results and 2023 guidance. We view SunPower shares as fairly valued.

SunPower’s 2023 guidance is consistent with its prior goal to grow its customer base at twice the market rate through 2025. Customer growth in 2023 of approximately 20% year on year is against a backdrop of roughly flat U.S. residential solar installations as California’s Net Energy Metering (NEM 3.0) takes effect in April. Despite the looming regulatory change, SunPower is investing heavily in the California market in the near term to qualify customers under the current rules. Offsetting this growth are higher investment levels as the company guided to platform investments for 2023 of $55 million higher than implied guidance from its analyst day last year. Specific areas of investment include digital capabilities and the next generation of its SunVault battery storage system.

SunPower is able to pursue aggressive growth goals largely due to its healthy balance sheet. The company entered 2023 with its lowest level of net debt ($48 million) since its initial public offering 15 years ago. SunPower’s balance sheet has largely been repaired thanks to shares in Enphase it received as part of a divestiture in 2018. SunPower sold its last remaining Enphase shares in January.

Despite SunPower’s healthy near-term growth we have concerns over its long-term competitive differentiation. Much of the company’s growth has come from its direct sales and installation business segment, which we view as having low barriers to entry. As such, we don’t view SunPower as offering investors an attractive risk reward at its current valuation.