First Solar Cheaper Than SunPower - Citi

Citigroup’s solar technology analyst Tim Arcuri today laid out the argument for preferring shares of solar-panel maker First Solar (FSLR) over those of SunPower (SPWR), arguing that people get it wrong when they tend to think the former stock is more expensive than the latter. As measured by next year’s earnings per share (both companies are on a calendar fiscal year), SunPower trades at 26 times, while First Solar trades at 40 times, just going by yesterday’s closing stock prices and the per-share forecast of $6.96 for First Solar and $3.64 for SunPower.

Arcuri’s point is that stock options expense is a bigger hidden cost for SunPower. SunPower’s $3.64 for next year is actually only $3.05 when you include the cost of options, while First Solar’s fully-reported GAAP earnings are only 10 cents less, according to Thomson Financial. Or in Arcuri’s terms, based on his estimate for GAAP 2010 earnings, SunPower trades at 27 times versus only 25 times for First Solar.

Arcuri also goes through a sum-of-the-parts model for both, looking at earnings from solar panel “system” sales, on the one hand, and “component” sales on the other, as two separate businesses. “On this basis, the valuation gap between SunPower and First Solar is even wider with SunPower’s components business trading at an implied 33 times calendar 2010 earnings per share, or greater than 25% more expensive than First Solar’s.” Arcuri has a “Hold” rating on shares of SunPower, and he’s not yet ready to move the stock to “Sell,” he writes, because SunPower is still on a lot of U.S. electric utilities’ short list for adopting renewable energy. “That said, [2008 business] deal flow will wash through over the coming months,” he concludes, implying that SunPower’s upside will be short-lived.

 

Comments

[Wayfarer]

I don't think SPWR and FSLR compete much anywhere other than Wall Street. Their solar efficiencies are too different. My question is how will the Cypress distribution affect SPWR? This is projected to have a report date in Sept and a distribution in Oct.

2008 Aug 22 02:48 PM

[Verity]

The biggest problem is that FirstSolar signs lots of deals, but wont be able to deliver. This leaves renewable developers like Schneider Power (I think they are public now in Canada) looking for other suppliers that can keep up with demand.

2008 Aug 22 03:06 PM

[solar jim]

I love comments like Verity's. Absolutely nothing other than bias (short that is). What's your logic, reasoning, or facts to support that statement?

FSLR is actually finishing their plant expansions faster than initially planned and talked about and the ramp is going faster and quicker each plant as well. So considering they will have just about or over 1 Gw in yearly production capacity at end of next year I'm interested to hear how they are going to 'fail'. Everything they do they deliver better than initially projected, which means you have an interesting idea of failure.

Just as they have long term contracts to deliver panels to customers they have contracts to get delivered to them a bunch of tellerium on a long term basis. Anyone who uses the Te argument and tight supply is a dumbass. It's called a long term contract for delivery of the element needed in supply to meet the long term contracts they have to make panels. Tough, I know, to actually do a few minutes of investigation, but very much worth it.

2008 Aug 23 01:25 AM

[NOWHEREMAN]

Go talk to Boeing about taking delivery "based on Long Term Contracts of the elements needed".

Reliance on external sources to provide "vital" elements is not prudent. Especially if that reliance is on only one source.

Its not about expansion, its about the delivery after expansion is complete. Can Te be delivered in the quantity needed or are the new facilities just going to sit unused. Long Term contracts are not a panacea.

What FSLR needs are secondary sources. Without them, they are a "crapshoot" or an accident waiting to happen. Too many ANALysts make assumptions based on current conditions and extend them years into the future. The Dotcom, Housing, Financial Bubbles are fine, recent examples of similar forecasting.

Refiners, Fredie, Fannie, BS, LEH, Corn Ethanol, LNG, the roles are quite large. They have one thing in common. A bunch of analysts making forecasts which do not include worst case scenarios.

2008 Aug 23 10:24 AM