Italy is wrecking havoc across the solar sector this week, and SunPower (Nasdaq: SPWRA) is the latest to disappoint the market with soft sales there. If it weren't for a bid by Total (NYSE: TOT) for 60% of the company, shares may have been hurt more than they were today.
In the first-quarter revenues were up 30% from last year to $451.4 million, but GAAP earnings per share fell to a $0.02 loss from a $0.13 profit last year. The loss was party due to gross margins, which fell to 20.3% from 22.5% last year and 26.6% last quarter. The falling margins have been consistent across solar with First Solar (Nasdaq: FSLR) and JA Solar (Nasdaq: JASO) showing similar drops.
The question for the rest of 2011 is how Italy's feed-in tariff changes will affect SunPower. The company has a No. 2 market position in the country but changes to promote rooftop solar may play into the company's favor. Since SunPower makes the most efficient panels in the industry, rooftop customers get more bang for their buck on high-cost real estate.
There's no assurance that will be true but for now investors can rest easy with first solar based on two things. Total's tender offer is still outstanding and should bring stability to shares in the short term. Long term, the company is cutting costs faster than its rivals (many have seen costs increase) and is on track to reach $1.08 per watt on an efficiency-adjusted basis in the fourth quarter.
Another one bites the dust
Evergreen Solar (Nasdaq: ESLR) tumbled yesterday and today after investors woke up and remembered that this company is nearing its deathbed. We forgot about the dire straits this company was in when shares bounced back to life in April. But investors woke up and smelled the coffee when the company admitted it may not have the liquidity to survive.
Solar bottom line
I'm still comfortable owning SunPower for the long term, but considering the premium Total is willing to pay for my shares, I will be participating in the tender offer. Long term, I think the company's cost reductions and high efficiency put it in a strong position, but right now shares are being held up by the Total deal. When that clears, earnings performance will have to take its place, and I'm not sure market conditions are in place to make that happen.
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.
