SunPower Rallies on Two Analyst Upgrades

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 |  Includes: AUO, SPWR
by: Wall St. Cheat Sheet

Click to enlargeBy Elliot Turner

Soleil’s Princeton Tech Research and Raymond James are both out with upgrades on SunPower (SPWRA), citing the company’s present valuation metrics and strong growth outlook. Since reporting better than expected earnings and raising guidance on August 11, shares of SunPower have lost about 20%.

Princeton Research pegged a $14 price target on SunPower, in raising their rating from hold to buy, while Raymond James checked in with a $12.50 target in raising the stock from market perform to outperform. At yesterday’s closing price of $10.03, shares of SunPower are trading at a discount to tangible book value, with double-digit revenue growth. Moreover, Princeton expects SunPower to realize the bulk of their 2010 earnings in the fourth quarter:

Princeton notes they are first to admit that their earnings estimates for SunPower are little more than educated guesses, which are heavily, heavily dependent on management guidance. Nonetheless, they do know that 2010 is going to be a year of significant growth in global installations of PV systems (up more than 90% on our estimates – 14 GW vs. 7.3 GW in the prior year). They also know that other companies in the downstream installation business are anticipating the bulk of their project business to close in the fourth quarter of 2010. Given this (and management guidance for the third quarter) they have pushed the bulk of SunPower’s earnings into the fourth quarter of the year. Their 2010 estimate is now below management’s guidance of $1.35-1.65 per share. Given that roughly 90% of the company’s earnings are going to come in one quarter – the fourth – the firm is going to err on the side of conservatism on their estimates.

SunPower is one of our feature stocks in Your Cheat Sheet to Investing in Solar. Analysts are expecting a large uptick in utility-based demand for solar energy, and solar demand growth in the US now exceeds that of the international market and is set to grow at a 75% clip in 2011. With a backlog of orders, and partnership with AU Optronics (NYSE:AUO), the company is gearing up for a strong finish to 2010 and a fast start in 2011.

SunPower, with its industry-leading efficiencies at converting the sun’s energy to consumable power is well positioned to benefit from each of these trends. The high efficiencies generated by SunPower’s modules require less physical space to produce the same quantities of energy as their competitors.

Disclosure: Author long SPWRA and FSLR