August 21, 2008, 6:30 pm
First Solar Cheaper Than SunPower, Says Citigroup
Posted by Tiernan Ray
Citigroup’s solar technology analyst Tim Arcuri today laid out the argument for preferring shares of solar-panel maker First Solar (FSLR) over those of SunPower (SPWR), arguing that people get it wrong when they tend to think the former stock is more expensive than the latter. As measured by next year’s earnings per share (both companies are on a calendar fiscal year), SunPower trades at 26 times, while First Solar trades at 40 times, just going by today’s closing stock prices and the per-share forecast of $6.96 for First Solar and $3.64 for SunPower. Arcuri’s point is that stock options expense is a bigger hidden cost for SunPower. SunPower’s $3.64 for next year is actually only $3.05 when you include the cost of options, while First Solar’s fully-reported GAAP earnings are only 10 cents less, according to Thomson Financial. Or in Arcuri’s terms, based on his estimate for GAAP 2010 earnings, SunPower trades at 27 times versus only 25 times for First Solar.
Arcuri also goes through a sum-of-the-parts model for both, looking at earnings from solar panel “system” sales, on the one hand, and “component” sales on the other, as two separate businesses. “On this basis, the valuation gap between SunPower and First Solar is even wider with SunPower’s components business trading at an implied 33 times calendar 2010 earnings per share, or greater than 25% more expensive than First Solar’s.” Arcuri has a “Hold” rating on shares of SunPower, and he’s not yet ready to move the stock to “Sell,” he writes, because SunPower is still on a lot of U.S. electric utilities’ short list for adopting renewable energy. “That said, [2008 business] deal flow will wash through over the coming months,” he concludes, implying that SunPower’s upside will be short-lived.
Today, First Solar shares closed up $6.28, or 2.3%, at $279.27, while SunPower Shares closed up $2.88, or 3.15%, at $94.45.
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