To Invest in the Best, Stick With SunPower Corporation

SunPower continues to plow ahead, pushing revenue and profits to new levels.

Joshua Bondy
Joshua Bondy
Apr 28, 2014 at 9:45AM
Energy, Materials, and Utilities

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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