From CS last night:
SunPower Corp.
Decrease Target Price
C4Q09 Review
Bottomline. SPWR reported the results of its audit investigation and Q4 last night. Q4 was a beat, but Q1 guidance was well below consensus. Although CY10 revenues were guided a tad above consensus, full year EPS was guided well below consensus, which will worry investors. The accounting restatements were a bit worse than the preliminary estimate, but it appears issues are behind us and company will increase visibility with investors. There is not much to do with the stock at current levels – our new PT is 15x $1.45 CY10 EPS, which works out to $21.75. That said, a further pull back may make the stock interesting: We liked the company’s geographical and channel diversification. SPWRA’s strong H/H growth in 2H10 from Italian projects should screen well compared to upstream companies, which are generally expected to be down significantly H/H in 2H10. WFR will also benefit from Italian expansions in 2H10.
Update. SPWR reported 4Q09 Rev/EPS (non-gaap) of $547.9mm (up ~17.7% q/q) and $0.47 (vs 45c in 3Q09). Pre-result street est were ~$490.9mm/49c. We
had estimated Rev/EPS(non –gaap) of $487.5mm/45c. 4Q09 GM (non gaap) of 21.7% (down 140 bps q/q). Company reported Components rev/GM of
~$340.3mm and 21.5%, Systems rev/GM of $207.6mm and 21.9%. 1Q10 & CY10 outlook. Company guided 1Q10 Rev/EPS (non-gaap) of $330- $350mm (down ~38% q/q) and 5c. Cons Rev/EPS was at $439.2mm and 35c, while we were modeling $459.5mm and 34c. Decline in 1Q rev is primarily due to shift in systems business in 2H. Company guided CY10 Rev/EPS (non-Gaap) of $2 $2.25bb (up 39% y/y) and $1.25-$1.65. Annual production was guided to 550MW. Pre-result Street cons was at $2.06bb/$1.78 and we we were modeling $2.03bb/$1.75. Company expects gross margins of 20%-21% and operating expense of ~11% for the year. Non-GAAP tax rate is ~18%-20% for the year.
Positives.
(i) UPP – Italian system pipeline providing H/H growth in 2H should help company outperform peers in 2H10; these projects also provide some visibility into 2011 as there is a pipeline in excess of 4GW; (ii) Diversification: SPWRA’s largest geography was 41% vs 47% in 2009. Also Germany was only 19% of revenue, and is only rooftop. SPWR has grown its dealer network to over a 1000 dealers now (vs 900 last quarter). Revenue is also well balanced between the commercial, residential and utility channels. The utility power project pipeline is also well diversified between US and Europe. (iii) SPWRA reiterated its long term cost reductions – still targeting $1/w cost by 2014; cost reductions are front loaded –company guided to 5% q/q cost reductions in 1Q10; (iv)
Innovation – company has now made record 20.4% efficient panels, 400W panels, new T20 tracker with 15% lower cost.
Negatives. (i) SPWRA guided 2010 revenue to $2.0-$2.25bb, above consensus at $2.06bb; but EPS was guided to well below cons at $1.25-$1.65 vs street at $1.78. Lower system ASP assumptions and slightly lower production caused the miss relative to our prior estimates; (ii) Accounting charges were $22mm pre-tax, versus prior estimate of $15mm; (iii) Q1 guidance of 5c non-GAAP EPS missed consensus of 35c by a wide margin – even solar companies that have beat estimates have traded down, so SPWR’s miss may not be viewed favorably near term; (iv) SPWR’s guidance implies a sharp hockey stick earnings ramp in 2H – we do think the Italian projects will come through, but some investors may await a lower entry point and more evidence before banking on that thesis.
Other. New accounting method – SPWR will transition from providing revenue/margin by product, to revenue/margin by end market. We think of SPWR along 3 categories – products (these are components and systems, which were the old disclosure method, helps assess company’s differentiation, relative cost and margins), geographies (company has been providing this data, and this helps assess risk to policy changes near term and end markets like residential/commercial/utility (this will be new disclosure, which help frame the arguments around long term margins, growth rate and grid parity). While we welcome the disclosure change to end-markets, we would urge company to provide disclosures along all three dimensions to best model the company. |
