Solar Stock Losers: SunPower

First Solar's big U.S. project pipeline win seems to be SunPower's loss, judging from the market reaction on Wednesday.
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(SunPower, First Solar story updated for analyst comment)

SAN JOSE, Calif. (

TheStreet

) -- The investor jury may still be out on whether

First Solar's

(FSLR) - Get Report

acquisition of a 1.1 gigawatt pipeline on Wednesday is a stroke of genius, but it seemed clear that solar investors were viewing the First Solar move as a slap in the face of

SunPower

(SPWRA)

.

While First Solar shares were trading close to flat on Wednesday at midday, SunPower had the biggest losses in the solar sector, down 5%.

Almost all of the Chinese solar companies were up on Wednesday at midday -- having recovered from a Tuesday selloff. First Solar investors were still digesting the news of the 1.1 GW project pipeline acquisition for $285 million -- First Solar said it would result in a 9- to 10-cent hit on 2010 earnings -- and awaiting the U.S. solar company's after-market earnings report.

Meanwhile, SunPower sold off on Wednesday on news specific to its business, other than the fact that investors were convinced the First Solar win was a big loss for SunPower.

"Selling shares of SunPower is the derivative trade on the First Solar acquisition," said Mark Bachman, analyst at Auriga Securities.

The negative view of SunPower in light of the First Solar deal began surfacing in Street flash notes on Wednesday morning.

In providing its

take on the First Solar acquisition , Wedbush Securities wrote that SunPower was originally contracted to provide the modules for Nextlight's AV Solar Ranch One project, a 230 megawatt project in the pipeline just acquired by First Solar. "We expect that First Solar will move to nullify that contract, unless the contract had a change of control clause that would allow First Solar to terminate the contract," Wedbush analyst Christine Hersey stated in the research note.

The Wedbush comment was just the beginning of the negative take on SunPower's fortunes as a result of First Solar's deal. Auriga Securities went further, saying that its research estimates that SunPower had been in line for anywhere from 200 megawatts to 700 MW of NextLight projects.

Auriga pointed to the fact that project documents held at the county level show that NextLight intended to use crystalline silicon solar panels on trackers, and while NextLight had not specified the module manufacturer, the description of the solar module type fits SunPower.

What's more, Auriga analyst Bachman said that SunPower and NextLight have had a strong relationship in the past, and have been in development talks for some time. The worst-case scenario that the First Solar acquisition of NextLight represents for SunPower -- beyond the loss of projects into which to slot its module -- is the fact that it shows a competitive weakness in getting deals done, said the Auriga analyst.

"Maybe SunPower can't compete with First Solar, and maybe investors now think they are not as strong a company as they thought SunPower was just yesterday," Bachman said. "We believe this is a huge negative for SunPower," the analyst said.

Auriga Securities initiated coverage of SunPower at a sell earlier in April.

The sentiment on the Street was that First Solar's gain was SunPower's loss, but how big a win is it for First Solar in terms of fostering a bullish sentiment among investors?

SunPower wasn't the only solar company reportedly bidding on the NextLight project pipeline. Asian solar companies were reportedly attempting to win the pipeline also. First Solar's acquisition, therefore, is a sign of its ability to wield its balance sheet as a weapon.

What's more, First Solar has been facing the onslaught from China as leading Chinese solar companies race to increase solar capacity. First Solar has already outlined its capacity expansion plans for 2011, but the 1.1 GW pipeline acquisitions now allows First Solar bulls to be more bullish on the level of capacity expansion that First Solar can execute on in the next few years.

Barclays analyst Vishal Shah made this argument about being bullish on First Solar capacity in a flash note on Wednesday morning.

Auriga's Bachman agrees, though he sees the First Solar development right ahead of earnings as two sides of the same coin. In the near-term, First Solar conceded that the deal will result in as much as a 10-cent hit to 2010 earnings -- of course, First Solar didn't put this in the press release announcing the acquisition, but the information was available on the First Solar web site.

The Auriga analyst said First Solar bears will use the dilution to earnings from the NextLight acquisition as a reason to extend bearish arguments and predict that First Solar will have to revise guidance downward, too. The First Solar bulls, on the other hand, will argue that the shrewdness of the acquisition earns First Solar a free pass on the earnings dilution.

Bachman is somewhere in between, not changing his short-term view of First Solar but becoming more bullish long-term. "In the near-term, it's a negative, and First Solar will have to lower earnings guidance, but in the long-term this deal gives First Solar free rein to spend more on capacity expansion and announce additional factories and that should be a positive for the stock," the Auriga analyst said. "It brings upside into the First Solar model and focuses the story out into 2011 and could make the stock more of a buy," Bachman said.

Not that right now is the time to send First Solar shares up, though. Bachman has previously said that he thinks earnings estimates for First Solar from the Street for the second quarter of 2010 are too high, because the modules that it ships into its own project business won't be recognized until the second half of the year. "There is a huge disconnect in quarter two, but that's a near-term phenomenon," he said.

As for the investors shorting SunPower as a result of First Solar's acquisition, at least one analyst thinks that is playing with fire, and far too facile a rationale for making a call on a solar stock.

Paul Leming, analyst at PrincetonTech/Soleil Securities, said investors who are reading the First Solar win as a SunPower loss are looking at the solar business with blinders on. While Leming conceded that even one utility scale project is a significant chunk of the nascent U.S. solar market, solar companies execute on global opportunities.

Additionally, solar market data is so poor, in Leming's opinion -- it wasn't until three months after the fact that Germany announced it had completed 40% of its 2009 installations in the month of December, much to the Street's surprise -- that looking at the potential loss of business in the U.S. for SunPower, even if it were to be at the high end of Wednesday's speculation, would still not be reason alone to be negative on SunPower shares.

Leming said the First Solar deal indicates the importance for solar companies of shifting to more systems business, however, there are too many analysts covering the solar space as it these solar stocks are technology stocks. "People should not be looking project by project. It's not a trivial amount of capacity, but you lose that one and move on and get another. This is not analogous to a tech company losing the Apple iPad contract," Leming said.

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