A Solar Play That Should Keep Shining

07/11/2007 12:00 am EST

Focus:

Jim Collins

Chairman and CEO, Insight Capital Research & Management, Inc.

Jim Collins, editor of OTC Insight, says SunPower should maintain its position as a leading solar-energy company because of strong products and a good acquisition. 

SunPower (NASDAQ: SPWR) engages in the design, development, manufacture, and marketing of solar electric power products—primarily in the United States, Germany, and Asia.

SunPower sells its products to system integrators and original equipment manufacturers. The company was incorporated in 1985 and is headquartered in San Jose, California with manufacturing facilities in the Philippines.

SPWR offers solar cells, solar panels, and inverters, which convert sunlight to electricity compatible with the utility network for residential and commercial applications. SunPower solar cells and modules generate up to 50% more power per unit area than [do] conventional solar technologies. A-300 SunPower solar cells are unique because the metal contacts needed to collect and conduct electricity are on the back surface of the solar cells—away from the sunlight.

Because the A-300 solar cells are more efficient [than] conventional solar cells, higher solar panel efficiency allows installers to mount a system with more power on a given site area. In addition, its subsidiary PowerLight offers PowerGuard Roof System, a roof-mounted solar panel mounting system for the residential market.

On June 21, SPWR launched the next generation of its Tracker, a solar power system that delivers up to 30% more energy than fixed-tilt systems. The Tracker uses high-efficiency SunPower solar panels tilted at up to 25 degrees to track the sun throughout the day.

The previous day SPWR announced that Morgan Stanley agreed to own and finance solar electric power systems that SunPower will deploy on seven Wal-Mart facilities in California. The financing agreement was secured under the SunPower Access program, which allows SunPower customers to purchase solar-generated electricity through a financing partner as an alternative to an outright purchase.

For the quarter ended April 1, SunPower reported net income of 29 cents per share, compared with four cents a share [in the same quarter the previous year]. Total revenue increased 339% to $142.3 million. The acquisition of PowerLight in January 2007 contributed $81.3 million of the revenue increase.

SunPower’s stock closed at an all-time high on June 24 before retreating modestly. (It closed Tuesday above $68, within striking distance of its high—Editor.) Of the approximately 18.6 million shares in float, 1.8 million trade daily. Banks and mutual funds own 82% and management owns an additional 8% of the shares outstanding. The company has a relative strength of 93 and receives a rating of A- for accumulation/distribution.

One caveat: Even though SPWR’s customer base is expected to increase and revenue streams to diversify as a result of the merger with PowerLight, a large portion of net revenues will likely continue to depend on sales to a limited number of customers. Including sales to PowerLight, during 2006, sales to the top three customers accounted for 65% of revenues.

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