We are maintaining our Neutral recommendation on vertically integrated solar Photovoltaic player SunPower Corporation ( '>SPWR ) . We feel over the longer run the company offers growth prospects due to its diversified channel strategy with a strong presence in the residential and commercial market, along with its status as a conversion efficiency leader. The company also has a steadfast focus on spreading its revenue stream by climbing the solar value chain.
SunPower Corporation designs, develops, manufactures, markets and sells high-performance solar electric power technology products, systems and services worldwide for residential, commercial and utility-scale power plant customers. The company’s semiconductor-based solar cells and solar panels, which convert sunlight into electricity, are manufactured using proprietary processes and technologies.
SunPower Corporation’s third quarter 2011 adjusted loss per share came in line with the Zacks Consensus Estimate of a loss of $0.06. However, earnings were below the year-ago earnings of $0.11 per share. The results were driven by effective performance from its Residential and Commercial (R&C) and Utility and Power Plants (:UPP) businesses. The results also reflect cost reduction efforts and commencement of production on the first line using step-reduced cell manufacturing process.
On a reported basis, the company posted a loss of $3.77 per share versus an EPS of $0.21 in the year-ago quarter. In the third quarter of 2011, the variation between reported and adjusted earnings came from goodwill and other intangible asset impairment ($3.56), tax effects ($0.06), amortization of intangible assets ($0.07), loss on change in European government incentives ($0.01), non-cash interest expense ($0.07) and gain on sale of equity interest in unconsolidated investee of $0.04.
SunPower’s customer base is spread across North America, Europe, the Middle East, Asia and Australia. The company is proactive in entering new markets. In addition to a sizeable presence in the US, it is already focusing on improving market share in France, Germany, Italy, Spain and Japan, while gaining new market share in emerging solar markets like England, Greece, Israel and Malta. SunPower is also increasing its global market presence within the residential and commercial markets by expanding its network of approximately 1,750 dealers. By the end of fiscal 2011, the company expects its global dealer network to almost double to around 2,000 dealers. Finally, by steering clear of long-term contracts for sales through its dealer network, the company is geared for margin growth through any short-term upswing in the solar market.
Over the near term, however, we are apprehensive about several factors, including the higher cost structure of the company compared to its peers, the glut of solar panels in the market, lower Average Selling Prices, subsidy roll-back risk in Europe, and foreign exchange risk. Thus, we assign a short-term Zacks #4 Rank (Sell) on the stock.
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