SunPower: Buy (Even if the Market Isn't)

SunPower shares will recover to their former heady days and hit $25 a share by year-end, according to a new poll of <I>TheStreet's</I> readers.
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SAN JOSE, Calif. (


) -- Last week ended with a stellar Friday for the solar sector, and all the negative sentiment hanging over solar companies for months seemed to exit stage left, at least temporarily.

A bullish report from bullish Credit Suisse led the charge, as the securities firm upped its already bullish solar demand forecast for 2010 up to 12.7 gigawatts -- as much as 4 GW above several other industry forecasts.

Of course, given the kinds of capacity numbers that the solar firms have been talking in quarterly guidance - as high as 13 GW when you add up the forecasts of the biggest solar stocks -- without a bullish call on demand like the one issued by Credit Suisse on Friday, the never-ending debate on potential solar overcapacity was tilting in the direction of the bears.

Also last week, industry consultant Solarbuzz put out a report that estimated the second quarter of 2010 alone could see demand of 4 GW. The entire 2009 demand figure from Solarbuzz was 6.4 GW. The Solarbuzz forecast for Q2 would also be 453% higher than the first quarter 2010 demand.

The Solarbuzz data wasn't intended to be a call to send solar shares ever-higher. The consultant issued some words of caution along with the big forecast. "The data demonstrates clearly that managing quarterly corporate performance in 2010 will be even more challenging than it has been over the past two years -- a period that proved to be a roller coaster ride for sales revenues and profitability," Craig Stevens, President of Solarbuzz, said in a statement. "In the event that production is not moderated in the second half of the year, the outcome will be a return to more price disruption. However, unlike 2009, there will be significant consequences for high cost producers."

The European nations were up to their usual political maneuvering in the past week also, and two of the countries that figure chiefly in the solar outlook,

Germany and the Czech Republic, continued to battle over cuts to solar support programs.

The reports from Europe sent mixed signals, but

Trina Solar



First Solar

(FSLR) - Get Report

, and


(SOL) - Get Report

, were among the

solar stocks surging ahead on Friday regardless of the twists and turns out of Europe.

One of the companies at the center of the solar storm is



. SunPower's recent 2010 guidance was far from a knockout as far as the market response. A break-even first quarter and an earnings range of 5 cents to 35 cents for the year did not sit well with solar investors already concerned about the cost structure of solar companies.

SunPower ended last week with a $220 convertible note deal being placed on Friday.

On Monday morning,

SunPower was back in the financing news, announcing the completion of its acquisition of European solar project developer SunRay Renewable Energy.

In the original announcement, SunPower said it intended to pay $235 million of the $277 million acquisition price in cash. However, SunPower ended up using more cash in the end, paying $263 million in cash and $11 million in promissory notes.

The SunRay deal brings into the SunPower fold a team of 70 project development and finance people, and a pipeline of 1.2 gigawatts, primarily in Europe.

The markets opened up on Monday morning, and so did shares of SunPower.

SunPower suffered in the days after its 2010 guidance, as two analysts set the SunPower bearish price target at $15. The selling action that

drove SunPower down indicated to some observers that the bar had been reset for the U.S. solar company: an inflection point for SunPower within the larger solar sector inflection period.

SunPower shares went down by more than $3 in the trading session after its earnings, slipping beneath the $19 mark after a pre-earnings rally had lifted shares to above $22. For the past seven trading days, SunPower has finished between $18 and $19.

The most bullish analysts hiked SunPower price targets after the earnings -- Piper Jaffray raised its price target to $25 and Barclays said "investors just don't get SunPower" more or less, and maintained a $28 price target on the stock.

It's no surprise, therefore, that SunPower shares have traded in between the most bullish and bearish targets since the lackluster 2010 earnings guidance. SunPower was largely left out of Friday's big rally, finishing the day up 1.1%, or a gain of 20 cents, to a share price of $18.22. SunPower shares had closed on Monday at $18.21.

A one-cent weekly gain does not a definitive call on a stock make. Thus,


decided to discount the wisdom of the most bullish and bearish analysts, and seek the wisdom of the solar crowd.

We asked the very vocal solar investors among



What do you believe the end of 2010 has in store for SunPower's share price?

It's worth noting that while the bullish turn on the solar sector on Friday was not reflected directly in SunPower's share price, on the other hand, if sentiment had stayed negative on solar, things could have been worse for SunPower, and it could have continued its slide to the $15 target price of the bears.


SunPower continues to attract a high level of short interest relative to other stocks in the solar sector, as evidenced by recent data from Nasdaq.

In the poll results, on the other hand, short sentiment on SunPower was in short supply. It's not much of a surprise -- given the representation of solar bulls among our readership.

In fact, the only poll respondent really negative on solar was a reader who sent in this comment: the poll was a sham and a shame because the only negative response among the choices was worded so that voting negative on SunPower was voting positive on Chinese solar players. A fair point -- though not that it would have made much of a difference in the overall SunPower sentiment.

To that point, only 13% of survey respondents indicated that "it's all downhill from here for SunPower; I'm betting on the Chinese solar companies."

Approximately 77% of responses were bullish on SunPower to one extent or another.

More than 50% of survey takers called their SunPower shot in bold terms, saying that SunPower shares will be at or above $45 by the start of 2011 (if only


required poll respondents to disclose their holdings in the poll stocks).

Another 27% of survey respondents indicated that their bullishness was at least a little less enthusiastic: SunPower shares would recover to above $20 and trade between $20 and $25 by year's end.

A sober 10% of survey respondents gave evidence to the fact that maybe one does not have to be a raging solar bull to believe that solar companies can still make decent investments. This 10% of survey takers said SunPower is not likely to trade above $20 -- and it hasn't one day yet since it's earning, though it's an awfully short period of time from which to make judgments -- nonetheless, these solar survey regulars describe SunPower as "still a good energy investment."

The 12.7 GW of solar demand coming in 2010, per Credit Suisse, made the solar sector "a good energy investment" more generally, at least for one day of one week.

-- Reported by Eric Rosenbaum in New York.


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