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    Solar Stock; Technology Leadership, Cost Reductions Brighten SunPower Outlook

    Shares of SunPower Corp. (Nasdaq: SPWRA) curtailed from yesterday’s nearly 13% gains this morning, slipping 2.50% to $15.86. The positive trading activity was in response to word that the company’s ability to produce solar photovoltaics (PV) would not be affected by a potential disruption in supply chain. The company reported that it relies on Japanese suppliers, which have not experienced major damages to facilities, for approximately 10% of required polysilicon. The upward rally was also sustained by concerns over the future of nuclear power, which shifted the focus on alternative energy, raising the chances of solar and wind options for increased utility power generation going forward.

    Despite the recent surge, SunPower’s March 18 trade at $16.11 is still 13.8% down compared to February 25 high of $18.34. The plunge in the stock price followed the decline in solar panel pricing, worsening margins at the company’s key competitors and speculations that the government subsidies to boost the solar panel installations might be halted. In addition, the fears that the solar industry could face an oversupply in 2011 have also contributed to SunPower’s depreciation.

    SunPower is a vertically integrated solar products and services company that designs, manufactures and delivers high-performance solar electric systems worldwide for residential, commercial and utility-scale power plant customers. Of all the solar panels available for the market, the company’s solar cells have one of the highest conversion efficiency that nears 22.4%.

    The last year was exceptionally strong for the solar industry. According to Solarbuzz, global photovoltaic installations reached 18.2 GW in 2010, up 139% over 2009. The company kept the pace with industry, reporting revenue of $2.2 billion in 2010, an increase of 46% from $1.5 billion in 2009. The net income in 2010 increased 450% to $178.7 million or $1.75 a share compared to $32.5 million or $0.35 a share.

    The company has also reported outstanding results for Q4 2010, topping analyst estimates and raising guidance for 2011. Revenue improved 71% to $937.1 million. Adjusted earnings more than doubled to $1.36 per share. Analysts, polled by Thompson Reuters, were expecting revenue of $931.4 million and earnings of $1.05 per share.

    Going forward, SunPower raised the guidance for both Q1 2011 and FY 2011. Adjusted EPS for Q1 2011 is seen in the $0.15 – $0.21 range against previous expectations of $0.16. The revenue is expected to range from $475 to $525 million. Meanwhile guidance for FY 2011 was raised to a range of $2 to $2.20 against analyst prior expectations of $1.87. All of this was based on 2011 revenue guidance of $2.80 billion to $2.95 billion and margins of 20% to 22%.

    While the competition among solar cells manufacturers is just starting to blaze, the potential decline in PV pricing could likely push out of the market the high cost cells producers. SunPower has faced stiff competition from low-cost manufacturers, most notably from Chinese competitors, but has aggressively moved to cut costs. With a cost of $1.08 per watt by Q4 2011, SunPower is now well position to close the gap and focus on promoting its outstanding conversion efficiency. Moreover, countries all over the world are now reevaluating their nuclear power policies in the wake of what’s happening in Japan, which brightens the prospects for solar projects.

    With a market cap of $1.41 billion and annual revenue and earnings per share in the range of $2.9 billion and $2.10, respectively, SunPower trades with singinifcant discount, compared to its U.S.-based peers. The stock is currently trading at a trailing price-to-earnings ratio of 9.20x and a forward 2012 price-to-earnings ratio of 6.80x.

    However, SunPower has a longer operating history than many other cell producers, proven technology, outstanding efficiency, strengthening customer base that advocates that it could maintain the same growth rates despite the further pricing pressures. Moreover, SunPower has increased its global dealer network to 1,500 partners and is on the way to add another 500 in 2011. In addition, it commenced operations at 1400 MW Fab 3 Malaysian joint venture and is now on track to produce more than a third of its solar cells at low-cost Fab 3 this year.

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