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SunPower Lowers 2011 Outlook, Could See Loss in Q2

SunPower (NASDAQ:SPWRA) recently announced its outlook for the year 2011, and it did not have a lot of good news to offer. While the company does not expect any significant change to the year's revenue outlook, it expects lower margins due to its need to reallocate some of its products from the power plant business to the less profitable residential & commercial (R&C) component business. SunPower manufactures and distributes silicon-based solar cells and also produces solar power products for installation on residential and commercial units. It has ventured into large-scale utility power projects only recently with the acquisition of PowerLight Corporation. The company's primary competitors include First Solar ( FSLR ), SuntechPower (NYSE:STP), and Yingli Green Energy Holding Com (NYSE:YGE).

We continue to hold our $16.22 price estimate for SunPower's stock , which is trading around $21 in the market due to the existing offer by the Total group to acquire 60% of the company's shares at around $23.25 per share. (( Total extends offer for SunPower by two weeks , Reuters, May 25 2011)) We expect the company's share price to reflect its true value in some time after the June 14th deadline for Total's offer.

Blame it on Italy…

SunPower claims that the reason for reducing output from the more profitable power plant business this year is because of "Italy's decision to focus market development on residential and commercial applications instead of large power plants."

Italy had been one of the leading markets for solar systems since 2007 largely due to the immense government support offered in terms of subsidies. But the Italian government announced its decision to cut overall subsidy levels earlier this year, although it raised the incentives for residential & commercial roof-top solar installations.

But SunPower does have its competitive advantages to fall back on

While the decision to shift to the R&C components business will lead to reduced margins in the short run, the fact that SunPower has the capability to dynamically rebalance its product offering based on market conditions is undoubtedly a significant strength.

On top of this, the company continues to break records in solar-cell efficiency and is able to demand a significant premium for its products. SunPower manages to generate almost twice as much revenue per watt of solar components sold as compared to its two biggest competitors, First Solar and Suntech Power.

Hopefully this setback to the company's income is only a temporary one.

See our complete analysis for SunPower's stock here

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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