SunPower Beaten up to Buying Opportunity Levels

SunPower (SPWR) continued to outperform market expectations in its recently announced Q2 earnings release. Revenues of $383 million beat the market’s expectations of $345 million and grew 40% over the quarter and a staggering 120% over the previous year. The Components segment contributed 29% to revenues, growing 18% sequentially and 60% over the year. Systems brought in 71% of revenues, an increase of 51% over the quarter and 160% over the year.

Europe continued to be SunPower’s biggest market, contributing 82% of revenues.

Its EPS of $0.61 also beat the Street’s expectations of $0.51, growing 56% sequentially and 144% over the year.

Management revised its guidance for 2008. For Q3, SunPower expects revenues of $340-$355 million with EPS of $0.53-$0.57. For Q4, revenues are expected to be $395-$425 million with EPS of $0.73-$0.80. The above estimates take year 2008 revenue guidance to $1.39-$1.44 billion with an EPS of $2.26-$2.36. SunPower also gave an early 2009 guidance of revenues of $2.0-$2.1 billion with EPS of over $3.50.

This quarter, the company continued to implement strategies of vertical integration, broad and differentiated product offerings, and a regional mix. To grow in Japan, the company teamed with Toshiba on its newly introduced residential product line. It has been expanding in Italy, Korea, and Germany and are establishing a footprint in France. The company remained technical leaders in the field, with its Generation 2 product efficiency increasing to 23.4%.

SunPower is well geared to face current market challenges. With its strong dealership hub in Madrid, the company can handle market disruptions in the Spanish power plant market by diverting effort to other market segments. The delay in the extension of the United States investment tax credit will impact its commercial market in the U.S., but the company is ready to address residential sales. The company was recently selected by Florida Power and Light to build the largest photovoltaic power plant in the United States, a 25-megawatt plant in DeSoto County, in addition to a 10-megawatt plant at the Kennedy Space Center. The company realizes the way to capture more market share is to cut costs to be able to compete with retail and wholesale rates in the developed world on a level cost-of-energy basis. The company aims to reduce costs to 50% of 2006 levels by 2012. Technological innovations to improve silicon conversion efficiency, contracts with polysilicon suppliers, and thinning of wafers, which will lead to lower silicon consumption and economies of scale, are all helping SunPower towards achieving its goal.

The stock did not react favorably to the impressive results. From the previous day’s close of $80.15, it slipped 6% and closed at $75.32 on the day of the results announcement. It is presently trading at $76.70. Concerns over both uncertainties in Spain and the US tax credit loom over the company, the global market’s awareness and adoption of solar strategies notwithstanding.

SunPower is on my list of long-term hold stocks, and I strongly believe that this company will continue to grow at an impressive pace. The government will change in the US this year, and the tax credit will most likely be reinstated. In India, energy policy is becoming a key issue to be addressed, and Solar will feature as a core strategic lever. [Read “Vision India 2020: AdiShakti"] I also believe that China will get its act together in the next few years.

All this will play in SunPower’s favor. I maintain this one is a long-term investment - a Buffet-style, believe in the company, believe in the industry, and believe in the value proposition style story.

Disclosure: None

Comments

[Deep Value]

Germany is currenly 50% of the market. What do you think is going on there?

[Zenfar]

Just added SPWR as a Long myself. The are opening new plants in sunny Florida with Florida Power as mentioned in the article, another thing to know about FPL is they are a leader in wind power in the US, a forward thinking company.

Long FSLR, SPWR, ENER, ESLR, ASTI
Technology and management matter...

[User 22826]

What do you think about Nanosolar. Do you think there's a chance they have a paradigm changing technology that will obsolete the current vendors? Long SPWR, FSLR, STP.

[omooc]

It is interesting that, in the current issue of Barron's (7/21), on solar, LDK is not mentioned. Why so?

[Road Runner]

Good reading. Thanks.

SunPower has a high level of shorts on the stock at 21.10% (from Yahoo finance page). I read somewhere that some people think SunPower is due for a fall because it self-finances some projects, and it has a large and growing accounts receivable that may have to be written off if some companies default. Do you see this as a problem?

I am long in SunPower.

[User 226214]

I would think CSIQ, TSL, and SOL are much better buying now.
Long all of above.

[supershort]

Correction: SPWR has over 17 million shares short, over 40% according to Nasdaq.com and E*Trade. The current quarter topped their lowered estimates from prior guidance. They were also cautious about the future quarters. They also trade an absurd P/E ratio. Technicals on this one favor short trading. The Florida deal, according to their own press release will not add to their bottom line, that's if it all goes well...but as with most construction projects, it has a high chance for cost overruns and therefore may be a loss for them. Also give the "nanosolar" and other emerging technologies, SPWR is ripe for a fall.

[supershort]

Oh and by the way, Buffet does not own this stock. So comparing it to a "Buffet style" is just plain wrong. Buffet shys away from technology because he knows it constantly changes. He does however like the big players in the alternative energy field like GE who will always be on top of the game when all the dust settles. That is your Buffet style play on solar and wind.

[dicki31785]

@Deep Value....all the uncertainties in the German market are gone....They implemented declines in solar subsidies 8% y-o-y without a cap and thus Germany should continue to be a great market for solar and other renewables kind regards from Germany CW

Concerning SPWR...for the long-term SPWR is always a buy at around 60...Really nice management...really nice panels(best efficiency industry wide)...but does have some valuation issues...but at around 60 I personally wouldn't mind the valuation issues anymore....It is certainly not as bad as FSLR valuation I really do not get why that stock is liked so much...Their panels have some serious issues, concerning the longer term, and the valuation is just absurd....With kind regards from Germany CW

Long ABX, AUY, CSIQ, ESLR, SSL, TSL

[cautious]

I'm not sure Buffet is a big fan of triple digit P/Es.

[Bapcha'sStocks]

I disagree. SPWR is a semiconductor company. Look for my article at my site or on Seeking Alpha.

Bapcha