SunPower (NASDAQ:SPWR) is on fire again today after being upgraded by an analyst from Lazard. The analyst pointed to the company's earnings power, strong leadership, superior technology, and global partnerships as reason to buy.
This is the first time that analysts have really gotten behind SunPower in a meaningful way so it's at least worth paying attention to for a minute. As of yesterday, 12 of the 18 analysts that Yahoo! Finance tracks have SunPower as a hold rating, and 6 have it as a sell, so analysts have been anything but bullish on the stock until now.
A little late to the game
As long time readers know, The Motley Fool has been out ahead of the solar story for well over a year now. I called SunPower my top stock of 2012, which may have been a year early but we Fools are long-term investors so we're more concerned with long-term gains than just today's trade. My Foolish debate crew made an outperform call on the stock in April, and as recently as last week I called SunPower the best stock in a booming solar market. I've also put my money where my mouth is with SunPower (see my positions here) so it's good to see another analyst finally see the value in this quickly improving solar company.
My question is why it took so long? The answer may have more to do with analysts and investors getting burned by solar stocks in the past than not seeing the value. And to the question, why now? That's easy.
After Berkshire Hathaway (NYSE:BRK-B) bought 579 MW of SunPower projects yesterday it's much easier for analysts and investors finally get on board. It's hard to stick your neck out when everyone is betting against you, but with Buffett in your corner people have to listen.
The story keeps getting better
The earnings strength Lazard pointed to isn't anything new. The company has been beating estimates for over a year now and recent results have shown an uptick in margins. At the same time, Chinese competitors Suntech Power (NASDAQOTH:STPFQ), Yingli Green Energy (NYSE:YGE), and Trina Solar (NYSE:TSL) are seeing margins deteriorate under the weight of oversupply and debt in China.
This oversupply and debt has caused installers to think twice about buying from any manufacturer who doesn't have a strong balance sheet. Check out my article here to see just how terrible nearly every solar balance sheet in China is right now. So, SunPower and First Solar (NASDAQ:FSLR) gain business because installers want a stable partner. First Solar has translated that into huge utility-scale projects, and SunPower has built a huge residential network with some utility projects sprinkled in.
SunPower has translated this into improving margins but has yet to translate it into a profit, which is where investors get worried. But once SunPower does swing to a profit, and China reduces supply, the conditions are set for a long, sustainable rise.
Don't forget about big brother
The other factor investors often forget is Total's (NYSE:TOT) majority ownership of SunPower. The oil giant has become a great funding source for the company's projects and provides downside protection when the going gets rough.
The only two companies I would buy in solar come with this type of financial strength. First Solar is still profitable and has a strong balance sheet while SunPower has the backing of Total. Don't underestimate this as a position of strength in solar.
Foolish bottom line
SunPower's huge jump today may not last once short-term investors take their profits and the analyst upgrade loses its steam, but in the long term this company is still the best stock in solar. High-efficiency modules, a large backlog of projects, and increasing demand in its biggest markets have SunPower set up for a huge 2013.
Fool contributor Travis Hoium manages an account that owns shares of SunPower and Berkshire Hathaway and personally owns shares of SunPower and has the following options: long JAN 2015 $7 calls on SunPower and long JAN 2015 $5 calls on SunPower. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.
The Motley Fool owns shares of Berkshire Hathaway. Motley Fool newsletter services recommend Berkshire Hathaway, First Solar, and Total. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.