Why A First Solar, SunPower YieldCo Is A 'Two-Headed Dragon Feeding The Beast'

In a report published Tuesday evening, Credit Suisse analyst Patrick Jobin commented that SunPower Corporation SPWR and First Solar, Inc.'s FSLR announcement of a proposed YieldCo is a positive for the companies as it accelerates its monetization strategy.

"We view this is a thesis-affirming development for SunPower and a significant incremental positive for First Solar," Jobin wrote. "The development is positive, in our view, as a jointly sponsored YieldCo could prove above-peer growth visibility from two incentivized entities, which should be rewarded with a lower yield, in addition to the traditional benefits of having a buyer for assets and more retained upside in long-term asset cash flows."

Jobin also added that the YieldCo is akin to a "two-headed dragon feeding the beast" and that having two sponsors is clearly better than one from the perspective of the YieldCo equity investor. The analyst added that the two "highly competent" entities will create a lower yield, allowing faster dividend per share growth.

Related Link: Why First Solar, SunPower YieldCo Is Like Coke And Pepsi Coming Together

Jobin also noted that the relationship between the two companies present a "Ying and Yang" in that a dual sponsorship allows each entity to play to its strengths, including SunPower's market leading Distributed Generation platform and First Solar's large backlog and utility-scale presence.

Finally, Jobin stated that at this time it is not possible to do precise valuation analysis and that the immediate financial impact would likely be the formation transaction where equity is exchanged for the operating projects, and as a consequence, the initial portfolio no longer generates revenue.

Bottom line, the specific structure of the agreement remains unknown and Jobin stated that potential conflicts of interest if both entities compete for the same contract need to be addressed.

Shares of SunPower are Outperform rated with a $35 price target.

Shares of First Solar are Neutral rated with a $70 price target.

image credit: Ian Stannard, Flickr