SunPower Shows Solar Can Be Profitable

Thursday evening solar energy technology firm SunPower Corporation (NASDAQ:SPWRA) reported second quarter results that blew away the expectations. Industry analysts were calling for earnings per share of $.13 on revenue of about $263 million, but the results came in at EPS of $.24 on sales of $298 million, growth of 39% sequentially. The biggest driver of growth was the components division which boasted a 75% sales gain over the first quarter with particularly strong performance among residential and light commercial consumers. The stock is up well in excess of 20% after the impressive results as well as an upgrade from FBR.

Not only was this quarter’s performance encouraging to Wall Street, but the company also raised sales guidance ahead of full year expectations. They are now expecting fiscal year sales totals to be somewhere in the range of $1.35 billion to $1.7 billion. Revenue for the last fiscal year were $1.43 billion, and growth in this market environment would be a rather compelling.

Alternative energy companies, in general, have had a hard time bringing costs down enough to make the technology profitable. Many of the stocks that could be characterized as “green tech” have traded more on growth potential than actual fundamentals. SunPower is the complete opposite of that broad industry characterization, as they have turned a profit in each quarter for the last 4 years. Of course, the company saw its best quarterly performance when crude oil prices were reaching record highs in 2008, and consumers were looking for any alternative that might be cheaper, and if it is “green” then that was gravy. This last quarter SunPower greatly exceeded estimates even with oil prices much lower, which suggests to us that management is able to deftly navigate various market conditions.

We continue to believe that SunPower is Undervalued based on the awesome sales growth over the years and consistent earnings of this well run company. Sales have not grown at the breakneck speed that they did in the first few years, but it is a more mature company now and cheaper oil being a major headwind we are not surprised. Over the long term, there is a trend to diminish the role of fossil fuels and move towards more renewable energy, which at this point should not be a surprise to anyone. If a long term investor is looking to ride this trend, then he/she could do far worse than to choose a company that has shown the ability to stay fundamentally strong from quarter to quarter, year to year. The company has used the recently more hospitable capital markets to improve the strength of their balance sheet, issuing equity and convertible debt in May. The company now stands with more than $450 million in cash on hand, or about $5 per share.

After the substantial move that the stock has seen today, this is not the optimal time to invest resources. However, SunPower remains attractive compared to its peers on a fundamental basis and we see it continuing this positive momentum through strong leadership. If there is a pull back of profit takers after today’s advance, then there is an opportunity for long term investors.

SunPower Shows Solar Can Be Profitable

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