- SunPower confirmed that they see the U.S. market as offering the most opportunity over the next few years - and this is particularly true of the utility-scale PV market.
- Building on their significant orders in Italy and growth in the U.S. market in particular, they now have a 5GW AC pipeline globally (defined as projects where they have land positions and are already in control of the site).
- Their pipeline for 2011 alone is 1.5GW.
- From this point of view, their US utility-scale business capacity is 95% booked out for 2011.
- They see margins holding above 20% and likely to improve as more of their own self-development projects kick-in from 2012 and due to cost reductions on a per watt basis.
- In terms of costs, the management make the fairly convincing case that although their module prices are higher than those of competitors, when it comes to utility-scale, they compete well on a levelized cost of energy basis - particularly with the costs savings delivered by the OASIS all-in-one modular system, which are on plan to deliver 25% savings.
- With further cost savings from their Fab 3 JV in Malaysia, the contribution from OASIS and other factors, they have a roadmap to get to less than $1 / watt by 2014.
- Whether or not you buy into that story completely, they do seem to reasonably suggest that costs will fall further in 2011. The table below provides an interesting overview of where these cost savings are coming from.
All of this seems to confirm the solid medium-term outlook for the company which I have been consistently writing about this year. As I have been arguing, company's stock price could easily trade well above $30. Merely taking the new FY 2011 earnings guidance of $2.10 and a PE ratio of 15 would put the stock at $31.50. Consequently, the medium-term outlook remains solid.
From a trading perspective, my views are slightly more nuanced. I am bullish on the company and hold a solid core position.
However, I strongly believe that investors in clean technology particularly have to face the fact that the market often trades on hype and fad followed by exaggerated pessimism and unwarranted weakness. Indeed, until the later part of last year, SunPower was experiencing the later - the very fact that produced the opportunity of which we are now taking advantage.
In view of this, my strategy is generally to look for good clean tech companies trading at beaten down levels. This was the case with SunPower. I then put on both a core position and a heavily overweight trading position with which to ride the recovery from oversold levels.
Once the rally back matures it is always advisable to take profits on the excess trading position and see the rest of the rally out with a solid core position. Such a strategy implies that you will always be taking some profits as the rally continues. However, this strategy also affords much more flexibility and averages well over time.
As I indicated in an article immediately before the earnings numbers themselves, I think we have probably reached that stage with SunPower. At the close just before the earnings announcement, the stock was up 36% year-to-date. It is now higher in the aftermarket. I have therefore now averaging out of my trading position and will be happy to hold my core position for the longer-term. That should ensure that if we see an unwarranted bout of profit-taking I'll have ammunition free to add back to the trading position.
Disclosure: I am long SPWRA.