Balanced View on SunPower Corp. - Analyst Blog

On Apr 17, we have issued an updated research report on SunPower Corporation SPWR. San Jose, CA-based solar firm continues to strengthen its presence in the developed and emerging markets. SunPower is also focusing on cost control initiatives. However, over-reliance on a limited group of customers for revenue generation and increasing competition in solar industry might challenge the company's future performance.

SunPower, a Zacks Rank #2 (Buy) stock, reported favorable results in fourth-quarter 2013. Quarterly earnings and revenues surpassed the Zacks Consensus Estimate. On a year-over-year basis, top and bottom line improved primarily on the back of strong demand for its unique, cost effective, high efficiency products in utility, commercial and residential projects.

SunPower provides solar systems to the customers in North America, Europe, the Middle East and Asia. In fourth-quarter 2013, the company has completed several vital projects, including the final phase of the California Valley Solar Ranch photovoltaic generating facility in San Luis Obispo County, CA. Currently, SunPower plans to enter England, Greece, Israel and Malta. We believe solidifying presence in developed markets besides expanding operations in new locations will enable the company to diversify its revenue stream.

We appreciate SunPower's steady cost-curtailment initiatives. The company's total operating expenses and cost of revenues decreased in 2013. SunPower is currently utilizing sophisticated manufacturing techniques to lower manufacturing costs and improve solar cell efficiency. These initiatives will enable the company to improve margins.

SunPower maintains a stable cash position and cash flow through operating activities. The company had a cash balance of $762.5 million as of Dec 29, 2013, and operating cash flow of $162.4 million in 2013. A steady financial profile supports SunPower's expansion activities and introduction of modern manufacturing methods.

However, we are concerned about SunPower's over-dependence on a limited number of customers for revenue generation. A major part of the company's revenue primarily depends on large ventures. In 2013, the company gathered 42% of its total revenue from two major projects. This may lead to project-specific risk in the future.

Key Picks from the Sector

Other stocks worth considering in the solar industry include Canadian Solar Inc. CSIQ, ReneSola Ltd. SOL and JinkoSolar Holding Co., Ltd. JKS. While Canadian Solar holds a Zacks Rank #1 (Strong Buy), ReneSola and JinkoSolar carry a Zacks Rank #2 (Buy).