STRI STR Holdings Inc (CE)

We maintain our Underperform rating on SunPower Corporation (SPWR). The company operates in an industry that has moved from a supply-driven to a demand-driven environment, with increasing competitive pressure, as the photovoltaic industry’s total manufacturing capacity exceeds the current demand for solar modules.

Currently, the average selling price (ASP) of SunPower’s solar modules dropped sharply in the residential and commercial segments due to an industry-wide oversupply glut. These segments make up two-thirds of the company’s top line.We are skeptical of any near-term margin recovery and believe the cascading ASP scenario will persist for some time to come.

SunPower is a vertically-integrated solar manufacturer, with a presence along the entire solar value chain from cells through installation. However, we expect the stock to be further restrained by the higher cost structure of the company compared to its peers, the glut of solar panels in the market, subsidy roll-back risk in Europe and foreign exchange volatility.

Besides, a substantial portion of SunPower’s construction contracts are fixed-price. If these contracts are not sufficient to cover unanticipated changes in costs over the life of the project, the company might even book losses. This continues to be an add-on risk for the company.

Recently, SunPower Corporation reported first-quarter 2012 adjusted loss of 23 cents per share, versus earnings per share of 1 cent in the year-ago quarter. However, earnings were in line with the Zacks Consensus Estimate.

SunPower Corporation designs, develops, manufactures, markets and sells high-performance solar electric power technology products, systems and services worldwide for residential, commercial and utility-scale power plant customers. The company’s semiconductor-based solar cells and solar panels, which convert sunlight into electricity, are manufactured using proprietary processes and technologies. 

Some of the main competitors with which the company has to compete in the current tight environment are Canadian Solar Inc. (CSIQ) and STR Holdings, Inc. (STRI).

 
CANADIAN SOLAR (CSIQ): Free Stock Analysis Report
 
SUNPOWER CORP-A (SPWR): Free Stock Analysis Report
 
STR HOLDINGS (STRI): Free Stock Analysis Report
 
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