3 Reasons SunPower Is Leading the Charge in Solar

Shares of SunPower (NASDAQ: SPWR  ) are exploding higher again today, continuing a wild run the stock has been on since late 2012. SunPower hasn't been the only stock moving higher over the past three months, but it is one of the biggest movers.

First Solar (NASDAQ: FSLR  ) has also moved higher as sentiment for solar has improved, but not in the same fashion. Suntech Power (NASDAQOTH: STPFQ  ) , the Chinese giant, is having a good year as well, although leverage is playing a big role in that.

SPWR Total Return Price Chart

SPWR Total Return Price data by YCharts.

I think this is just the start for SunPower, and here are the three biggest reasons why.

Efficiency
What separates SunPower from the competition is the efficiency of its panels. SunPower has panels that are 21% efficient when most module makers are selling traditional panels in the range of 15% to 16% efficiency. First Solar has conversion efficiency of just 12.7%, which is why the company focuses on projects where it can reduce balance of system costs and make the cost of electricity competitive.

The advantage of efficiency is that you can get more power from the same installation. There's little need to increase the cost of wiring, inverters, land, or permitting -- just use a more efficient panel. As the cost of panels have become a smaller percentage of the total cost to install solar this is a key, particularly in the residential market.

GTM Research estimated that the average cost for a Chinese best in class solar module during Q4 was $0.59 per watt. That would be a component cost that goes into an installation that on average costs $5.21 per watt in a residential setting, or $2.40 per watt for utility scale (Q3 2012 the latest available). If the cost of the module is a relatively small percentage of the total installation cost, it's worth upgrading to a more efficient one, even if it's more expensive. I ran through an example that illustrates how a more efficient panel will actually save money in an article found here.

Balance sheet
SunPower doesn't have the best balance sheet in the world, but compared to other solar manufacturers, it looks like a model citizen. Cash stands at $504 million with $839 million in debt. Keep in mind that non-GAAP gross margin stood at 18.7% last quarter.

Compare that to Chinese rivals, and SunPower looks great. Suntech Power had net debt of $1.6 billion as of the first quarter of 2012, the last time we got detailed financials. Considering that the company has lost tens of millions since then, it's safe to say the balance sheet has gotten worse.

Yingli Green Energy (NYSE: YGE  ) had $1.9 billion in net debt as of the third quarter and reported a negative gross margin of 22.7%.

LDK Solar (NASDAQOTH: LDKSY  ) makes even Chinese companies look bad, with $2.7 billion in net debt and a negative 11.2% gross margin. There's no way the company can dig out of that hole without a handout from the Chinese government.

These three stocks have risen along with SunPower over the past three months, but they show no signs of making a profit, and they have no discernable way to pay off current debt loads. SunPower, on the other hand, has relatively little debt, positive margins, and the backing of oil giant Total even if times get tough.

Research and development
To stay ahead in solar, you have to keep improving your products and cut costs, all at the same time. SunPower does both by investing in R&D, something few other solar manufacturers do.

In 2012, SunPower spent $63 million in R&D, cutting costs 25%, rolling out third-generation Maxeon solar cells and a 21% efficient panel, and moving forward with the C7 Tracker, which could improve the company's offerings in the utility space.

As the industry's competition improves, this will continue to be a key differentiator for SunPower. When you start with better panels, and you have the R&D to improve from there, it is very difficult for competitors to catch up.

Foolish bottom line
Solar is exploding right now, and SunPower is leading the way. I don't think the momentum stops here considering the strong balance sheet, improving income statement, high efficiency, and focus on developing new products. 

One of the likely solar winners
SunPower may be taking the glory right now, but let's not forget about First Solar, one of only a few solar companies that actually turn a profit. If you're looking for continuing updates and guidance on the company whenever news breaks, we've created a bra-new report that details every mu-know side of this stock. To get started, just click here now.


Read/Post Comments (5) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 14, 2013, at 6:07 PM, longline wrote:

    LDK up over 6% with over 5million shares traded

    today this co is a huge Chinese employer and

    will benefit from the increased Chinese subsidies

    This isn't a handout they will work for the money

    and have spent large amounts to secure

    strategic advantages as the solar revolution

    progresses.

  • Report this Comment On February 15, 2013, at 9:58 AM, clanza875 wrote:

    Does anyone know why construction revenue from utility projects is not considered GAAP revenue?

  • Report this Comment On February 15, 2013, at 10:38 AM, TMFFlushDraw wrote:

    @clanza875

    It has to do with U.S. accounting rules. Apparently a project can't be considered revenue until it's completed or at least until an operable section is completed.

    There is debate even in the accounting community about how projects like this are accounted for on income statements, hence the difference between GAAP and IFRS. In the case of SPWR, it's just important to compare non-GAAP to non-GAAP and GAAP to GAAP numbers on a quarter to quarter basis.

    I hope that helps,

    Travis Hoium

  • Report this Comment On February 15, 2013, at 11:17 AM, clanza875 wrote:

    Thanks Travis, that is very helpful. So if I understand correctly, its just a matter of timing. Non-GAAP revenue will eventually be turned in (dollar to dollar) to GAAP revenue over a longer time horizon. Its just a matter of which quarter the milestone is hit.

  • Report this Comment On February 15, 2013, at 6:43 PM, TMFFlushDraw wrote:

    @clanza875

    I believe that is correct. I'm not an accountant (I do have an MBA so I know enough accounting to be dangerous) so if anyone wants to correct me feel free.

    I will try to look this up in their SEC filings this weekend. I'm short on time right now but wanted to respond.

    Travis Hoium

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