Why I’m Bullish on SunPower $SPWRA

As a follow-up to last week’s post on solar stocks, I just have to comment on Sunpower.

In thelast week alone the SPWRB shares have sold off an additional $2 (~18%)and now trade under $11.50/share. At this price SPWRB looks like "asure thing" investment if your investment horizon is 1 year or longer.

The P/E on 2010 earnings is ~8 and the P/E on 2011 is ~5.5. The Price toSales is now under 1 on trailing twelve month (TTM) and under ~0.7 for2010 (projected) revenue of $2-2.25 B. The shares are trading atroughly 1x book value. If Warren Buffet invested in technology shares, I think SPRWB would now be on his radar.

On Wednesday, Sunpowerreleased Q1 earnings of 5c/share, in-line with guidence, albeit on thelow side. Revenue was strong at nearly $350 M. Management reiteratedguidence of $1.45/sh for the full year–with over $1 of the earninghitting in the fourth Q, as solar plants/projects built throughout theyear are sold to plant operators upon completion.

Managementnoted that they had sold out of panels in Q1 and Q2, and that they hadhedged nearly 3/4 of their eurodollar exposure at $1.38 USD per E.Sunpower expects to build 550MW of solar panels and 155MW of solarplants. If you assume zero-dollars of profit for every MW of panelbuilt and $1 profit for each MW of solar plant built you get prettyclose to the ~$150M in earnings that management expects for the year.

Management claims that both making panels and installing panels yields equivalentgross margins in the low 20% range, although since solar panels now sell for ~$2/W (or less) and the installed cost of solar is above $5/W,probably closer to $6/W, it is easier for me to see the profit potential of the installation side.

Finally Sunpower is building anadditional GW of panel making capacity (1GW = 1,000 MW) in the comingyear (at which point the total will be 1.55GW) and Sunpower claims a~4GW of panel installation backlog.

Assuming Sunpower can deliver on its forcast, it would be easy to imagine SPWRB trading above $20/shwithin a year (heck it was trading above $19–if only briefly–less than 2 months ago!)

[The SPWR class A shares also sold off, but the B shares typically trade at a 10%-12% discount to the A shares. The Bshares are equivalent the A shares–but with extra voting rights. Sobuy the B!]




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