Earnings Cheat Sheet: SunPower Corp Shines in the 3rd Quarter

Shares of SunPower (NASDAQ: SPWRA) are trading relatively unchanged after reporting stellar earnings for the 3rd quarter and issuing inline guidance for the 4th quarter and fiscal year 2010.  SunPower is one of the world’s leading integrated solar companies.  The company enjoys a considerable technological edge in the efficiency of their technology at converting the Sun’s energy to power.  With world-wide solar demand soaring during 2010, SunPower benefits from its ability to garner premium pricing due to their technological advantage.

Earnings: The company reported earnings per share of $0.26 against estimates of $0.13.

Revenue: SunPower’s revenues checked in at $550.6 million for the quarter, beating analyst estimates of $475 million.

Guidance: For the fourth quarter, the company anticipates earnings per share between $0.95-1.15, while analysts had been looking for $1.10.  Management expects revenues to fall somewhere between $870-970 million, compared to consensus estimates of $935 million.  For the full year 2010, the company expects to report $1.45-1.65 in earnings per share compared to estimates of $1.43, on revenues of $2.15-2.25 billion compared to estimates of $2.1 billion.

Notable Stats: While many know SunPower for their cutting edge technology, there had been some concern on Wall Street over the company’s debt structure.  The timing of a huge surge in demand for solar panels in the midst of the oil price shock left the company vulnerable to the concurrent debt market deterioration.  It is noteworthy that in the last quarter, according to CFO Dennis Arriola, SunPower “repaid $143 million in convertible debentures and improved our liquidity position by executing a new $70 million revolving credit facility secured with our equity interests in Woongjin Energy.”  This greatly enhances the company’s earnings power moving forward.

Did You Hear That? SunPower CEO Thomas Werner said that “For 2011, we continue to see more demand than supply in our growing Utility and Power Plants (UPP) and Residential and Commercial (R&C) businesses. Operationally, our Fab 3 joint venture completed initial solar cell production tests, achieving conversion efficiencies of more than 22% and we remain on plan for our 2011 cost reduction programs across the value chain” [emphasis added].  It’s a good thing that SunPower recently entered into a joint venture with AU Optronics (NYSE: AUO) in order to expand their manufacturing capacity in order to meet growing demand.

Commentary: SunPower’s technological edge makes them a particularly intriguing option for utility scale projects.  Their benefit is two-fold: in larger scales, SunPower’s modules can produce a greater quantity of energy in a comparable physical space than its competitors, and SunPower themselves use less input goods in producing that same quantity of energy.  This affords the company greater cost-certainty on the production side, and a major advantage in pitching larger projects when space is at a premium in marketing to the utility scale projects.  Clearly the company is using this edge to their advantage in securing orders for the full extent of their production capacity.

Following the earnings release and conference call, Deutsche Bank maintained their buy rating on the stock, noting that “The risk of 4Q10 revenue and EPS loading has largely mitigated and the focus now shifts to 2011 outlook. SunPower is expected to present its 2011 guidance at its analysts meeting next week, but provided some early color with its 2011 module output forecast. While we have taken down 2011 EPS estimates, we maintain our Buy rating on favorable risk reward outlook.”

The stock has been spending the past 5 months consolidating between $10 and $15 and more recently the range has narrowed to the $12-15 area.  Following this earnings report, watch closely to see if price can move and hold above $15, at which point there would be little resistance until the $18-20 range.

SunPower looks to breakout above the $15 level.

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Disclosure: Long SPWRA