Solar Winners: SunPower, AEIS

NEW YORK ( TheStreet) -- With the market off to the races on Thursday, so is SunPower ( SPWRA), leading a rally in the solar sector and ending Thursday up 9%.

It looks as if SunPower picked a good time to release positive news on its business in Europe. General market bullishness and another solar earnings demonstrating the high demand in the sector helped move all solar stocks up.

On Thursday morning, SunPower announced a deal to build 3 solar power plants in Italy totaling 11.1 megawatts.

The SunPower deal in Italy is for standard solar modules, as opposed to its high efficiency panels. SunPower recently launched a line of lower efficiency, lower cost panels under the Serengeti brand name.

Italy has among the most lucrative feed-in tariff rates in the world, and is scheduled to reduce those rates at the beginning of 2011, triggering the race to construct solar projects before the deadline.

Additionally, SunPower had indicated in its first quarter results that its business in 2010 would be heavily tilted to the second half of the year, "back-end loaded earnings."

The SunPower announcement of three deals in Italy touches on these two important themes: first, getting solar projects in ahead of the FIT reduction in Italy, and secondly, SunPower showing some proof of the back-end loaded results that it alluded to earlier this year.

The big issue with SunPower has been when the company would actually start delivering a strong quarter of earnings and it came down this year to the way they guided, with almost all earnings falling into a single quarter, the fourth quarter, explained Steve O'Rourke, solar analyst at Deutsche Bank. People like to receive confirmation that projects have begun and financing is resolved and SunPower can sell the projects with a completion date before the end of the year when feed-in tariffs decline in Italy.

"Anticipation of sales increases confidence. SunPower is giving more insight on how things are playing out and that gives confidence. The stock has been back on its heels for a while," said the Deutsche Bank analyst, who has a $25 price target on SunPower.
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Sunpower finished trading on Thursday above the $14 mark, a small victory for the U.S. solar stock, which has hovered in a range between $12 and $14 since mid-June.

The earnings results from Advanced Energy Industries ( AEIS) was also sending solar shares higher on Thursday. Advanced Energy Industries beat the Street in its earnings on Thursday and upped its guidance for both third quarter earnings and revenue significantly -- in the case of revenue, a 30% to 40% increase over the previous expectations.

AEIS shares were up more than 23% on Thursday after the bullish guidance, and for the first time this year, AEIS experienced a day on which more than 2 million of its shares were traded.

Advanced Energy has been growing its solar inverter business, but it was historically not a core focus of the company, so it's growth in market share is off a small base, Edwin Mok, analyst at Needham & Co. explained. Additionally, Advanced Energy is a relatively new entrant to the European space. This doesn't mean that the AEIS earnings can't be seen as a read-through for solar demand more generally, as its strong outlook for third quarter is partially driven by growth in the inverter space.

In the end, the AEIS results were a reiteration of the high demand in solar that has already been a given among investors in the space.

However, given the AEIS business-specific strategy shift to inverters, it's not just a robust solar demand story in the third quarter outlook, but the market share gains that AEIS is making. Advanced Energy said on its earnings conference call that it expects fourth-quarter inverter sales to grow also. AEIS had traded almost double its average volume of shares, which is 436,000, before the midday mark on Thursday.

German inverter company SMA Solar Technology provided one of the first indications of the current high level of demand earlier this month when it also raised guidance significantly.

-- Written by Eric Rosenbaum from New York.

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