SunPower Buy Opportunity? 40 comments
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In the middle of April, SunPower (SPWR) hit a new recent high around $100. Since then, the stock has retreated (mostly on below average volume) and is now hovering around the 50-day moving average. Starting at the beginning of May, SPWR appears to be setting up a new base of support around $82. With the big swings in price following the run-up in late 2007, predicting the next move is difficult. However, with oil maintaining price above $100, and natural gas and coal prices also rising, solar continues to attract interest and SunPower should be a beneficiary.
SunPower remains one of the more attractive solar plays, with half of their PV production achieving an industry leading 22% conversion efficiency (with some of their peers still in the 8% range). SunPower aims to keep on the cutting edge of efficiency by increasing Research and Development investments by 63% from Q1 2007 levels.
SunPower's recent quarterly earnings release contains additional information concerning its growth potential that should make investors salivate (see conference call transcript):
Our proprietary technology delivers the highest output per unit area of any commercially available solar system and we intend to leverage this technology by aggressively expanding our solar cell production by more than 150% in 2008 compared to 2007. This scale, combined with lower silicon costs, higher efficiencies, thinner wafers and on-going quality and cost improvements in our factories, will drive unit cost reduction.
These kinds of moves should allow SunPower to achieve their 30% gross margin targets, which would lead to fairly stunning profits and significant growth potential.
Reading the earning reports leads to only one conclusion: the first quarter was good to SunPower, with revenue at $272 million, up 22% from prior-quarter revenue of $224.3 million, and up 92% from year-ago first-quarter revenue of $142.3 million. SunPower projected Q2 revenue even higher at $330-$350 million. Additionally, SunPower raised their FY 2008 guidance, based on strong Q1 demand, to between $1.3 and $1.375 billion. This would represent a 60% increase from FY 2007 revenue levels, even with factoring in the higher silicon input costs, which have been well documented. SunPower went on to up 2009 revenue guidance to around $1.8 billion, a 40% increase. Despite this optimism, SunPower shares dropped following the earnings release, which was not uncommon this earnings season, possibly due to language in the earnings release.
With the apparent base setting up, I think this is a buying opportunity. I bought at $81 last week, and am keeping a stop around $74, which is where the stock is seeing its strongest money inflow. If it breaches through this level, there is no telling where the stock could go. But with traditional energy prices rising, the solar industry should continue to grow at an impressive rate, especially if Congress can get around to extending solar tax credits; but that's a story for another day.
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Disclosure: Author has a long position in SPWR
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But frankly, at $40+, I would be selling, not to say it can't run to $50, but it has now more than doubled since I recommended it.
Jack
Yes, FSLR is speculative and overpriced, but even after today CSIQ's market cap will be below $1.5B. I agree with you that going forward FSLR's competitive advantage erodes, and CSIQ is out-earning them already.
So, I'm not adding to my position, but I see significant potential (4x?) further growth. However, I think that when the oil bubble pops, the solar stocks are probably going with it.
I'm already figuring CSIQ will make north of $2.50 this year--maybe even north of $3, so it's not exactly a bad deal at $40. I just think TSL has more room to run from here than CSIQ. And I think 4X for CSIQ is dreaming. If it doubles this year from $40, that would be brilliant.
FSLR at $300 is a joke, IMHO.
As to oil, I have gone on record many months ago saying that oil would top $100 (when oil was $80), and nothing has made me think it will go back to double digits ever again.
But I do think solars will come back to earth (ie, forward PE's at 20-25) as their margins compress around 20%, but I do not believe that will happen for another 12-18 months at the earliest, and if demand soars as I expect, it may not happen til 2010.
jack
Perfect analysis....concerning the oil...as i wrote last week, as well i think in the fslr article, i would be quiet suprised if we ever see double digits again....
FSLR certainly is too pricy espically with that lack of disclousre concerning tellarium....but what kind of panels does TSL produce i mean what is their efficency since it is polysilicon they use otherwise they wouldnt have considered the plant(but that is scraped now anyways) which was a good sign for tsl and everybody using poly actually....i read through your article from the 23rd....but couldnt find anything in their....the stock looks really cheap from a growth stock standpoint lets say they earn 3.11 which is consensus at the moment...would still only be a PE about 13.XX...looked at their suppliers...that looks pretty solid...but i would like some extra info...i saw that Q4 margins were signifcantly better than before...due to what?also saw they barely carry any debt...does that mean they always go to equity when they are in need of money?can they already cover their expenses or is dillution in sight?i know it is a lot to ask for but maybe a little paragraph or two on TSL would be much appreciated...To csiq if they close that gap at 35 i am buying that again...but right now after I sold my csiq shares I am at around 80% cash and need some investments...because my position in STP is not really doing its job adequatly....and my Gold shares were just bought last week for a little hedge if the economy stutters more than expected and and inflation still grows...because that inflation(growth) data which nobody seems to care about is pretty worrisome in my eyes....well thank you very much in advance kind regards from across the pond CW
They are working on 180 micron thicknesses now to lower amt of poly per panel, while the leaders are working on 160-micron process.
You say consensus is $3.11, but Schwab Earnings Report shows $3.32, with one analyst calling for $4.19. I think TSL will do well over $4 in 2008 (versus $1.54 in 2007), putting its PE at 11 for a company that will close to TRIPLE its earnings from 2007 to 2008.
To me, that is beyond ridiculous valuation.
Look at CSIQ. Before earnings came out, consensus for this quarter was 35 cents. CSIQ reported 61 cents, and is up 50% from about a week ago. There is no reason for TSL not to blow out its numbers when it announces because it does much the same thing as CSIQ, and sells in the same markets.
Execution at TSL has been quite good. Earnings last quarter were up 117% qoq--YES, quarter over quarter! TSL's gross margins were 27%, and operating margins of 16%--essentially the best in this business (not including FSLR). They are guiding to gross margins of 23-25% this year, but I think gross margins this quarter will come in close to 25% (if not above 25%) because ASP's have been high.
But the market has not rewarded TSL for its great work last quarter. That was true of CSIQ's last quarter as well--it went unrewarded, but here we are a quarter later and CSIQ is going crazy (too crazy, IMO; I would have sold yesterday at $45, or at the very least, I would have written calls at $45 strike).
If TSL reports well, it would not shock me to see TSL run $10 in two days just like CSIQ has in the past 2 days.
I don't know much about TSL debt, but I do recall a press release or comment from the company somewhere (see FAQ's on website) indicating they can grow as they are planning to grow WITHOUT debt or equity. Remember, TSL made $1.54/share in 2007 and will do 2.5X that much this year. That is a lot of cash available to be put back into the business.
Jack
I think that now that CSIQ is almost at $45, and SOL is over $22, TSL is bar far the best value in this space.
Jack
Then today, it ran up to an intraday high around $47, and closed at around $46, on very good volume. To me, this looks like a break to the upside.
Jack
First thanks for all the info. It is very much appreciated. I looked up a lot about TSL throughout the day, and also thanks to your info, i feel pretty good about my investment. Bought a nice chunck at 44.50 today, and looking to double that position tommorow....The valuation is absolutly absurd, as it was with CSIQ, and at those valuations it is almost impossible to say no to growth (solar) companies such as TSL. And both have(had) profitable growth and in the end have lower production costs than German companies(and also do not understand why those companies pay dividends when they could build the "mercedes of solar" but that is off topic)and other solar companies....
I am really looking forward to earnings and at these valuations the downside risk seems pretty "limited", which is also never bad. The prospects of the company look quiet good. Lets see if it works out. Kind regards CW
The other company you should look at is PWE. Screaming buy at current price (unless one believes oil will go back under $100 or nat gas under $10, which I know you don't), plus it pays almost 13% dividend, and cash flow per share increased 30% this year, and will increase more going forward. See my SA article about a week ago.
I think that if oil and gas prices stay within 10% of where they are now, PWE will give you a return of 30-40% by the end of this year. Which is an annual return of over 50%. Even Buffett would think that's a good return.
Jack
Could they announce other bad things I don't expect? Sure.
But given SOL, CSIQ and even JASO and LDK earnings announcements this week, I think TSL will report very well. And CSIQ and SOL price movements in the past week demonstrate what could happen if TSL does.
Jack
Besides that few lines about STP may be? I'd appreciate it. Thanks :)
As to STP, I hold a bit of it, but because its PE is about 30, it is less compelling.
Jack
Any news on TSL's progress with the UL certification process in the US? I felt it was interesting they haven't tapped the US market yet (but anticipate 5% sales in the US for 2008).
Wanted to comment that I like TSLs vertically integrated business model. Controls quality and drives brand recognition.
Lastly, STP reports earnings same day as TSL. It would be a shame if an STP stumble adversely affects TSL as solar stocks tend to have a pack mentality.
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