On Mar 21, we maintained our Neutral recommendation on vertically-integrated solar manufacturer, SunPower Corporation (SPWR), following appraisal of its fourth-quarter results.
Why the Neutral Recommendation?
On Feb 7, 2013, SunPower announced its fourth-quarter 2012 results. Fourth-quarter 2012 adjusted earnings per share (including stock-based compensation) of 10 cents per share were in stark contrast to a loss of 21 cents per share incurred in the year-ago quarter. The reported figure easily exceeded the Zacks Consensus Estimate of 4 cents per share.
The results were driven by a diversified downstream channel strategy, solid execution on cost saves and increased customer demand for high efficiency and industry leading technology. GAAP loss during the fourth quarter was $1.22 per share, which included one-time charges of $1.32 per share, wider than the year-ago GAAP loss of 94 cents per share.
SunPower generated revenues of $678.5 million, lower than the Zacks Consensus Estimate of $778 million. However, the figure was higher than the year-ago figure of $625.3 million. During the quarter, revenues generated in the Americas were $520.2 million compared with $323.5 million in the prior-year period.
Revenues in Europe, the Middle East and Africa (:EMEA) were $89.4 million versus $248.6 million in the year-ago quarter. Revenues from Asia-Pacific (:APAC) were $68.9 million, up from $53.2 million in the year-ago period. SunPower’s gross margin for the quarter increased to 18.7% from 11.3% a year ago.
Going forward, for the first quarter of 2013, the company expects total revenue in the range of $475 million to $550 million. SunPower expects earnings per share in the range of 5 cents to 20 cents in the first quarter of 2013.
Estimates for full year 2013 and 2014 have remained stagnant over the past 60 days. The Zacks Consensus Estimate for 2013 remained at 14 cents while that for 2014 remained at 66 cents. Accordingly, SunPower carries a Zacks Rank #3 (Hold). In fact the company has delivered positive earnings surprises in all the past 4 quarters.
We are optimistic about SunPower’s presence along the entire solar value chain from cells through installation. Going forward, we are bullish on the company 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 is largely owned by French oil major Total S.A. (TOT).
Over the near term, however, we are apprehensive about 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, rising competition, financial stability of its customers and foreign exchange risk.
Other Stocks to Consider
Other stocks in the solar industry that are currently performing well and have a bright outlook include Canadian Solar Inc. (CSIQ) and ReneSola Ltd. (SOL), both with a Zacks Rank #2 (Buy).
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