There's nothing investors like more than a company that under-promises and over-delivers when it comes time to report earnings. One of this Fool's favorite solar stocks, SunPower (Nasdaq: SPWRA), did just that when it reported earnings last night, and the stock shot up 10% as a reward.

Revenue was up 71% to $937.1 million in the quarter, helped by the sale of the 72 MW Monalto Solar Park, and earnings crushed everyone's expectations. Non-GAAP earnings per share came in at $1.36, far above the $1.05 analysts were expecting.

Cost per watt is experiencing a rapid fall from $1.91 per watt in the fourth quarter last year to $1.71 per watt during that period this year. That number may sound much higher than those of competitors, but SunPower's higher efficiency leads to lower balance of system costs, allowing it to compete with less-efficient, lower-cost panels. According to SunPower, when we adjust for efficiency, cost per watt falls to $1.36 when compared with polysilicon competitors with 14% module efficiency. On this basis, SunPower expects to hit $1.08 per watt in the fourth quarter of 2011.

Here are a few more highlights from the quarter:

  • Achieved 24% efficiency cell and 20% efficiency module in 2010.
  • Sold the largest solar project in the world and offered the first public bond offering for a solar project with an investment grade rating by Moody's.
  • Signed a 711 MW PPA with Southern California Edison to begin delivery in 2013.

Since SunPower's margins vary based on project sales, I am looking at the full-year margins to see where SunPower is headed. In 2010, margins expanded to 23% from 18.6% in 2009 and ended the year with 25.4% in the fourth quarter. The improvement may not continue in 2011, but it gives the company a nice buffer in case of price declines.

First Solar (Nasdaq: FSLR) is still by far the leader in cost per watt, but as SunPower lowers its cost per watt, its lower balance of system costs will allow it to expand margins. If a relatively high-cost provider like SunPower can deliver these kinds of margins, we should see phenomenal numbers from First Solar and low-cost providers like JA Solar (Nasdaq: JASO), Trina Solar (NYSE: TSL), and Hanwha SolarOne (Nasdaq: HSOL) when they release earnings. The concern for solar is still in the back half of 2011, but with strong numbers to end 2010 and little concern from management, I don't see a reason to get out of solar now.

Interested in reading more about SunPower? Click here to add it to My Watchlist, which will find all of our Foolish analysis on this stock.

Fool contributor Travis Hoium is happy to say he owns shares of SunPower and First Solar. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

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