Friday, May 14, 2010

Sunpower shares represent excellent value

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

In the last 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 "a sure 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 to Sales is now under 1 on trailing twelve month (TTM) and under ~0.7 for 2010 (projected) revenue of $2-2.25 B. The shares are trading at roughly 1x book value. If Warren Buffet invested in technology shares, I think SPRWB would now be on his radar.

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

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

Management claims that both making panels and installing panels yields equivalent gross 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 an additional GW of panel making capacity (1GW = 1,000 MW) in the coming year (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/sh within 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 B shares are equivalent the A shares--but with extra voting rights. So buy the B!]


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