This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

5 Ways to Trade Total's SunPower Gamble

Stocks in this article: TOT SPWRA FSLR WFR STP YGE TSL JASO SOL LDK

NEW YORK ( TheStreet) -- European oil giant Total (TOT - Get Report) is offering to take a 60% majority stake in U.S. solar company SunPower (SPWRA), paying $1.3 billion to $1.4 billion.

Total will begin a tender offer for up to 60% of SunPower's class A and class B shares at a price of $23.25 a share, a 46% percent premium over the April 27 closing price of SunPower's A shares and a 49% premium over the closing price of the B shares.

SunPower shares soared by 35% on Friday, from a Thursday closing share price of $16.21, to $22.07 -- though still short of the Total offer which values SunPower shares at $23.25.

SunPower officials described the deal as a transformational investment that will help fund projects across the board from the largest utility scale deals to smaller commercial and residential projects as it seeks to install as much as 10 gigawatts of solar over the next half decade. SunPower pointed to Total's credit strength and financing relationships across a global footprint of 130 countries.

Of course, the deal could spark the proverbial wave of consolidation across the solar sector, analysts predict. Furthermore, for a sector of publicly traded stocks that has suffered from an existential crisis founded on endless cycles of subsidy risk from key European markets, the Total deal was viewed as a major endorsement for solar stocks, at a time when solar stocks are once again facing weak market conditions.

Case in point, in a negative footnote to the big Total news, was SunPower's forecast of first-quarter earnings of 15 cents a share, the low-end of its previous guidance and below Wall Street's consensus view of 19 cents. SunPower sees revenue of $450 million in the first quarter, shy of the average analysts' view of $510 million.

The huge premium offered by Total for SunPower shares comes after a one-year period during which SunPower shares have been close to flat in trading. SunPower went public in 2005 and in its first day of trading rose from its IPO price of $18 to above $25, compared to the $23.25 offered by Total for a 60% stake. SunPower shares rose as high as $130 in 2007, and were still trading at the $40 mark at the outset of 2009 before declining to the current range, which over the past year saw SunPower shares move as low as $10 and as high as $20.

Shares of the largest solar companies, including the U.S. companies First Solar (FSLR - Get Report) and MEMC Electronic Materials (WFR), which both have big project businesses like SunPower, rose by 7% after the close. By Friday, MEMC was still up by 6.4% but First Solar, the most richly valued company in the solar sector, only gained 1%.

The Chinese solar leaders Yingli Green Energy (YGE - Get Report), Trina Solar (TSL - Get Report), and Suntech Power (STP), also shot up quickly after the closing bell by between 5% and 7% on Thursday, but by Friday the gains were smaller than some second-tier Chinese solar stocks, like Hanwha SolarOne (HSOL) and China Sunergy (CSUN).

Right after the SunPower deal was announced there was likely short-covering, and some of the second-tier Chinese solar stocks, at valuations as low as 5 times earnings, were likely to receive a bump on the premium Total is paying for a solar company, yet there may be more to the sustained gained in MEMC and Hanwha SolarOne than just cheap valuations.

Chinese solar cell vendor JA Solar (JASO - Get Report) rose by more than 6% on Friday, and analysts noted that JA Solar is one of the most highly shorted names in the solar sector as a percentage of its float -- more than 28 million shares short, according to the latest Nasdaq data, of an 83 million float share total. The move up in solar stocks and big move up in JA Solar reflects the fact that shorts see "Big Oil" coming in to the solar sector and that has increased the takeout risk, leading to short-covering.

The euphoria across solar from the SunPower deal led Jefferies analyst Jesse Pichel to coin a new term: PV Oil Equivalent (PVOE). Integrated oil and gas companies may be encouraged to acquire PV companies.

For investors grappling with the implications of the SunPower deal, and not yet able to comprehend PVOE, here are five ways to think about trading solar in the wake of the surprise wedding between Big Oil and SunPower.

1 of 6

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,164.95 -251.90 -1.45%
S&P 500 1,994.99 -26.26 -1.30%
NASDAQ 4,635.24 -48.1670 -1.03%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs