Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Gold/Mining/Energy : SunPower Announces Initial Public Offering SPWR -- Ignore unavailable to you. Want to Upgrade?

To: Eric who wrote (137)	11/5/2008 11:16:35 AM
From: Eric	Read Replies (1) \| Respond to of 196

From CS this morning... Reality check Downgrading to Neutral. While we remain great fans of the SPWR concept high efficiency panels, differentiated solar offering, with a good utility pipeline, we have to disassociate those facts with our views on the stock. SPWR has appreciated 50% off its lows and the negative pre-announcement yesterday are reasons we are downgrading SPWR from Outperform to Neutral. We still think SPWR will be a long-term winner in solar, and would look to get more constructive at lower valuations our revised view is purely a function of the impact of currency and lower estimates that warrant a lower price and rating on the stock. Post the close of markets yesterday, at 7.30 PM EST, SPWR announced that there is 15c risk to 4Q08, and 50c risk to CY09 EPS due to forex risk. Company commented that it changed the functional currency of certain European subsidiaries from dollars to Euro that caused the change. Company is now 80-90% hedged (for net income) in 4Q08, and 50% for first three quarters of CY09. Disappointing revision. The guidance revision was concerning for three reasons: (i) Guidance under question - At the time when SPWR reported on Oct 16, the Euro had already declined to $1.34, vs an average of $1.55 in C2Q08. Since the time of the report, credit markets have improved a bit, and the Euro is only down an additional 5c. It was disappointing that the lower Euro or the change in accounting methodology were not taken into account at the time of guidance. (ii) Sensitivity to Euro - on the call, SPWR commented that it had a net 30-40% exposure to the Euro currency. A 5c change in Euro should not have a 50c impact on CY09 EPS (we'd estimate a 20-25c impact would have been more appropriate), if only a third of the revenues were tied to Euro. Also, SPWR has a natural hedge selling into US and Asian markets. Company did not quantify what the new assumptions are for Euro revenue exposure and the price at which it has hedged its Euro. We'd look for a detailed discussion clarifying Euro exposure and sensitivity at the analyst day. (iii) Other concerns while we do not think there are other issues, we expect company to spend sufficient time at the analyst day clarifying any other issues like real market pricing or other factors that could also be impacting on CY09 results. Reality check for solar. We wrote yesterday in our solar earnings preview that the decline in German tariffs, the decline in Euro and the impact of the credit crisis can cause solar panel pricing to decline from $4.10/W in C2Q08 to 2.70/W by end 1H09. Solar stocks have appreciated nearly 60% off its lows in the last 8 trading sessions. We received several incoming calls on why solar stocks were up several factors were cited Obama ally, solar investors were too bearish,equity rally, improvement in credit markets, a potential euro rally, oil rally there were numerous factors cited (Obama was the most requently cited factor). While it is hard to fight a macro tape that wants to be positive we don’t think SPWR's currency issues are specific only to SPWR the math should work similarly for other solar companies perhaps to a greater degree, as SPWR has a natural hedge selling into US and Asian markets. Recent stock performance is a bit at odds with the fundamental pricing expectations in solar over the next 2-3 quarters Valuation. SPWRA's stock has appreciated ~50% off its lows on Oct 28. We are lowering our CY09 GAAP EPS (includes option expense of 72c) to $2.35, down from $2.81. We are trimming our price target to $47, 20x CY09 EPS, consistent with our valuation methodology for FSLR. Neutral rating is more appropriate for stock given the reset to earnings.