Sunworks Inc (NASDAQ:SUNW): A Top Solar Pick In A Tough Industry

Some of the biggest names in solar stocks have had a rough ride over the past twelve months, with aggressive expansion and what essentially amounts to overstretching creating a number of insolvencies. There are some, however, that have remained relatively flat, and that might represent nice momentum opportunities heading into the close of the year. One of these is Sunworks Inc (NASDAQ:SUNW). The company just sat down with analysts and investors as part of an earnings conference call, and served up some interesting points to underpin our thesis.Here's what we're looking at going forward.First, a quick introduction.Sunworks is a solar company operating out of Nevada, which sells, installs and maintains solar panels across residential and commercial real estate. That sounds pretty on par with other players in the space, but it has a few core differences that serve to differentiate it from its competitors. First, it has a priority focus on the commercial side of the industry, with current commercial installations outnumbering residential somewhere in the region of two to one (based on the last twelve months or so). Of this commercial, Sunworks management highlights agricultural applications as playing a key role in growth (and there's been plenty of it, we'll get to that shortly), and further, that this agricultural focus has a different cost model than other industrial and residential installation. Specifically, that agricultural installations are driven by word of mouth, referral marketing. To put this another way, when an agricultural property owner wants a solar installation, they check in with other agricultural installations to see who they went with, and how it's working out.Sunworks has a very high success rate in its agricultural installations, and this results in a considerable amount of referral business. Aside from the obvious top line benefits of an increase in agricultural installations, there's a key secondary benefit in that these referral installations are essentially devoid of any major sales related costs. The company isn’t having to market to them through its sales team, and so the top line increase also translates to a wider margin on the bottom line.Commercial aside, there's also been a major advancement in the company's Nevada home state that is boosting its residential operations. In 2015, the Nevada Public Utilities Commission decided to change the rules of net metering (which is the credits system through which solar users can get access to electricity in low light – night time, winter day – periods). This made residential ownership far less attractive than previously, and many solar companies left Nevada as a result. Sunworks stayed, (and to quote management here) with foresight that one day the decision would be reversed as the demand from the consumer would drive back residential demand.In September, the Nevada Public Utilities Commission made a decision to allow home owners with active net metering applications dated before January 1, 2016, the ability to revert back to a full credit net metering rate structure. While not a complete reversal, this opened up a market of around 15,000 eligible Nevada residents to Sunworks to target with premium solar systems. This market is brand new, and so as yet we don't know its impact, but we expect it will serve to bolster revenues across the next few quarters on the company's residential side.Looking at numbers, Sunworks revised its guidance for the year to the tune of a $15 million decrease, and it's this revision that looks to have played the major part in the market's response to the company's update (a 25% downside revaluation).However, as reiterated by management, this $15 million is rooted in pushbacks, mainly commercial, whereby customers have delayed installations. There looks to be some concern over whether these pushbacks will convert, but as per the call, the majority are from already established clients, and all are signed contracts, so we're pretty confident they will come through. Of course, our confidence is rooted only in management's suggestions, but that's what we've got to go on right now.The final differentiator for Sunworks is that the company tries to push unit sales on its customers, as opposed to leasing the systems and collecting revenues that way. This – for some – is a downside, as it limits long term streams. That said, however, it allows the company to expand pretty much debt free, and as we've seen over thee last couple of years, debt driven expansion is very dangerous in what is essentially a very young industry.All said, we like this one. The company is built on a solid expansive strategy, with a fresh sales team in place (poached from an unnamed competitor) and a positive bottom line, with little to no debt. That's a rarity in solar, and it could pay off going forward.We will be updating our subscribers as soon as we know more. For the latest updates on SUNW, sign up below!Disclosure: We have no position in SUNW and have not been compensated for this article.