SunPower Shares Higher Following UBS Upgrade To Buy

The market is pricing in another 2011 panel downturn. But UBS sees value in the stock following 50 percent plus year-to-date decline and believes the company has been largely caught up in the news-flow of other situations (Sunedison Inc SUNEQ/SolarCity Corp SCTY).

"Early indications suggest utility-scale margins are proving more intact than expected. Admittedly, we may be early on the module cycle but emphasize the SPWR story is more reliant on selling the highest efficiency systems, which is itself a niche that should maintain some premium," analyst Julien Dumoulin-Smith wrote in a note.

owever, the analyst cut 2016 EPS view to $1.55 from $1.84. The revised number still came in above consensus estimate of $1.29.

"Bottom line, we do not expect Utility scale margins to remain nearly as high as ~28 percent in 2015, but overall volume push should offset margin loss as more competitive current projects (with lower margins) flow through the P&L," Dumoulin-Smith highlighted.

The analyst models about 11 percent EBITDA CAGR in the 2016–2020 time frame on a declining EBITDA/w profile, given more modest margin projections amid P-series uncertainty.

Meanwhile, the analyst highlighted that SunPower's low capital cost for P-Series allows the company to build out significant capacity with less capital risk and the company's track record suggests execution on P-Series rollout "is less of a concern for us."

Furthermore, Fab 5 rollout on IBC technology in 2019–2020 should provide further expansion in the traditional side of the business in time for a pre-ITC step down rush in the United States.

Moreover, the analyst is positive on SunPower's financial stability and cash management.

"Unlike peers, we view SPWR has taken a more measured approach to leverage and cash management. Only First Solar, Inc. FSLR has a larger cash balance in the industry and we note Total's $1 billion credit guarantee and $600 million emergency liquidity provide a strong backstop on financial metrics," Dumoulin-Smith added.

At the time of writing, shares of SunPower were up 3.18 percent on the day at $14.93. The analyst cut the price target to $22 from $31.