SPWR Earnings – SunPower Shows Why It Trades at a Premium

On April 26 SunPower (SPWR – Last trade $59.55) reported knockout Q1 results. This was the first quarter that SPWR reported results consolidated with PowerLight following its January 10th acquisition. The company reported EPS of $0.29/share, blowing away the street's estimate of $0.19/share (a lower tax rate allowed for EPS upside to the quarter). Non-GAAP revenues for the quarter were $143.2 million, also beating estimates at $127.7 million. SPWR also guided Q2 and FY07 ahead of street estimates, and the share price has moved from an April 26 low of $57.02 to a high of $59.55 on April 27.

To the credit of SPWR management, the integration of PowerLight seems to be going smoothly. The acquisition was immediately accretive in Q1 and is expected to remain accretive, and the strongest Q1 revenues growth came from PowerLight related products. 

Perhaps the most impressive aspect of the SPWR earnings release is the 3% increase in their average selling price (ASP). SPWR is well positioned in Spain, a high ASP region, and it appears that the 35% revenue exposure to this region was the main driver behind the ASP increase. SPWR management said that it expects ASPs to be stable throughout the year. This is a notable development, because nearly every other solar vendor is projecting declining ASPs. I believe their ability to achieve higher ASPs compared to the other solar plays highlight their strong product differentiation and competitive position.

The good news doesn't end there. SPWR also said it has more polysilicon than it needs relative to its stated production targets for 2008 and 2009. Several analysts have upgraded their EPS estimates for SPWR during 2008 as new lower cost polysilicon arrives.

However, there is one puzzling aspect of SPWR's Q1 results. The company is a technology leader, but they only spend 1.7% of their revenue on research and development. The company seems to be spending more on growth initiatives, but if they want to remain the market leader they will have to boost spending on maintaining their technological edge.

Looking forward, SPWR is well positioned to take advantage of the expected pickup of solar demand in the United States. Sales from the U.S. represented about 40% of Q1 revenues, and SPWR has established a network of 75+ dealers in 15 states.

Nevertheless, SPWR still trades at a significant premium to other solar plays. I would suggest using any weakness in the stock to take long-term positions. Otherwise, use CY as a cheaper way to access the SPWR fairy tale. 

Disclaimer: I do not own any stocks mentioned above. I do not give investment advice. Do your own research. Do not rely on anything in this blog to make investment decisions. Consult an investment professional familiar with your specific financial situation before buying or selling any security.