To Invest in the Best, Stick With SunPower Corporation

SunPower (NASDAQ: SPWR  ) had a strong first quarter, with year-over-year revenue growing 9% and net income swinging from a $54.7 million loss in Q1 2013 to a $65 million profit in Q1 2014. These are just the sort of numbers that are great to see in a well-positioned growth company. Yet again SunPower's product advantages are helping to differentiate its panels and drive revenue and earnings forward.

Advantages in the rooftop market
SunPower's efficiency advantage is still alive and well, allowing it to produce up to 55% more electricity than a competitor's system during the first year of operation given an equal amount of real estate. Given Bloomberg's estimates that Q1 2014 clean energy investments were driven primarily by small solar systems with less than 1 megawatt (MW) of capacity, there is a good chance that SunPower will outperform its utility-focused competitor First Solar (NASDAQ: FSLR  ) . 

Look beyond margins
At first glance First Solar's utility-oriented strategy looks superior. First Solar's 2013 gross margin of 33.2% is substantially higher than SunPower's 2013 gross margin of 19.6%. Yet First Solar's margin advantage is not everything. Its 2013 net sales fell 1.8% year over year, while SunPower's net sales grew 3.7%. Even SunPower's 2013 year-over-year non-GAAP revenue fall of 0.8% outperformed First Solar's fall in net sales.

New markets are coming online
From 2013 to 2016, the solar market is expected to grow from 37 GW to 58 GW. This significant growth is expected to come as Latin America, Africa, and the Middle East comprise a larger piece of the pie. SunPower is not going to be left behind, as it has the world's biggest merchant solar plant under development in Chile. The plant is expected to be fully commissioned in 2015.

The Chinese manufacturer, Yingli Green Energy (NYSE: YGE  ) , is looking to Latin America as a big growth opportunity. In Q4 2013 its direct-generation sales to the region increased 200% year over year. It expects that in 2014 sales outside of Europe, the U.S., and China will grow to 40% of all shipments.

The growing Latin American market is expected to help Yingli's bottom line and boost its total module shipments from 3.2 GW in 2013 to over 4 GW in 2014. Still, Yingli's total debt-to-equity ratio of 29 is concerning, and its 2013 gross margin of 10.9% is far below SunPower's. 

Yingli's Chinese cousin Trina Solar (NYSE: TSL  ) is in a similar position. Its total debt-to-equity ratio of approximately 1.3 is significant, and its profit margin of -4.1% is a big step below that of its top U.S. competitors. Though its margins are second rate, Trina was able to become less dependent on the U.S. and Germany in 2013. 

Even with these balance sheet issues and margin problems, Chinese sales are shaping up to be a significant help for Yingli and Trina Solar in 2014. China became the biggest solar market in the world in 2013, and Yingli's and Trina's status as Chinese companies should help them gain government favor. 

Stick with the best
SunPower's margins are improving, and it is turning out profits. It doesn't have debt issues like Yingli. First Solar is a formidable competitor, but SunPower's advantage in the distributed-generation market will help push its business forward in 2014. SunPower is expensive, but Q1 2014's results show that it is a top-rate solar manufacturer.

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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 April 28, 2014, at 11:41 AM, jargonific wrote:

    Sunpower has been plagued by short sellers. Today has been dissing the company even as all their news is great.

    Note which 'media' has negative headlines at a time like this to know who is manipulating them to try to get you to sell... Note: Short Interest as % of Float 30.65%... going down but still rediculous.

    Deny the shorts on SPWR. They are profitable, in a growth phase, and stable.

  • Report this Comment On June 21, 2014, at 2:57 PM, Borisbmx wrote:

    hi JB, what is your 3 to 5 year vision of this stock if the company is able to successfully execute its on its growth plans?

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Joshua Bondy

Joshua Bondy works in the energy and materials sector. He works hard to bring to light the underlying forces that drive prices and move the market.

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