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SunPower Shines Bright

Posted on Tuesday, Oct 21st 2008

More good news. SunPower (SPWR) announced impressive Q3 earnings last week. With revenues of $377.5 million, they exceeded the market’s expectations of $350 million, and reported annual growth of 61%. Their EPS grew 82% to $0.60 and beat the Street’s view of $0.56.

During the quarter, the Component segment contributed $184.2 million to revenues, representing 64% sequential growth and 140% growth over the year. The Systems segment grew 22% over the year to $193.3 million and accounted for 51% of revenues.

SunPower attributed their exceptional performance to lower polysilicon costs, higher conversion efficiencies, improved silicon utilization, steel efficiencies at higher production volumes, and modestly higher average selling prices.

During the quarter, they saw significant increase in interest in the US. They completed 10 megawatts of large-scale commercial projects for Applied Materials, Agilent, Toyota, California Academy of Sciences, and the U.S. Department of Energy. They entered the utility scale PV market with Florida Power & Light and PG&E announcements through their ability to deliver solar power at a price competitive with other sources of energy.

SunPower continued with their strategies of vertical integration, geographical, and product diversification.

For Q4, they gave a revenue outlook of $405-$435 million with EPS of $0.73-$0.80 and raised their guidance for the year to $1.44-$1.46 billion with EPS of $2.34-$2.41. For 2009, they are expecting revenues of $2.05-$2.15 billion with EPS of at least $3.50.

They are confident of achieving these numbers due to their continuously reducing input costs and improving silicon utilization and conversion efficiencies. They also see the passing of the Investment Tax Credit as an opportunity that “creates a long-term scalable commercial market, brings in the utilities and creates a countrywide residential market.”

The stock had slipped to a 52-week low of $37.10 earlier this month. However, it has since recovered to $54.00. I maintain a Buy rating on this stock on a long-term basis. Even though oil prices have fallen substantially in the past few weeks, environmental awareness and the green movement are here to stay, regardless of which presidential candidate wins the November election. In fact, both candidates are committed to a greener world economy. Also, costs are falling at a good pace such that grid parity may come sooner than 2013, the previously forecasted timeframe, potentially eliminating the need for a lot of subsidies sooner than we thought.

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