Another Contract for SunPower - Analyst Blog

SunPower Corporation (SPWRA) won a contract from the San Ramon Valley Unified School District (“SRVUSD") board of education to install high efficiency solar power systems totaling more than 3 megawatts (MW) at six schools in the district. Construction will be completed by the end of fiscal 2011.

SRVUSD encompasses the communities of Alamo, Blackhawk, Danville, Diablo, and San Ramon as well as a small portion of the cities of Walnut Creek and Pleasanton. The district comprises 34 schools serving more than 28,000 students in Kindergarten through Grade 12.

SRVUSD will finance the purchase of the systems using low interest bearing Qualified School Construction Bonds (QSCBs) available as a result of the federal American Recovery and Reinvestment Act of 2009 (ARRA). QSCBs allow schools to borrow at cheap rates for equipping, rehabilitation, and repair.

SunPower estimates the solar power generated by its solar power systems will offset an average of 80% of the electricity costs at each of the six schools, achieving an estimated savings of more than $2 million annually.

Headquartered in San Jose, California, SunPower 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.

SunPower’s semiconductor-based solar cells and solar panels, which convert sunlight into electricity, are manufactured using proprietary processes and technologies.

The future of SunPower appears strong, given the revival of the alternative energy industry – specifically solar power energy – higher captive generation of panels, rising average conversion efficiency, declining silicon costs and assured silicon supply. Furthermore, state RPS requirements, stimulus plan and ITC grant underscore the SunPower story in the U.S.

In fiscal 2010, SunPower expects revenues in the range of $2.00 billion – $2.25 billion, with an adjusted EPS of $1.25 – $1.65. However the Zacks Consensus Estimate for fiscal 2010 presently stands at 82 cents with downward revisions all the way. We are apprehensive of the near-term performance of the company due to oversupply of modules in the market, subsidy risk in Germany and Italy, foreign currency risk, and the volatile economic environment in Europe.

SunPower generated 53% of its revenue from European customers in fiscal 2009. Per company estimates, a 10% change in the euro exchange rate would have impacted its revenue by approximately $81 million in fiscal 2009.

SunPower is also trading at a premium compared with its peers such as Solarfun Power Holdings Co. Ltd. (SOLF), JA Solar Holdings Co. Ltd. (JASO) and China Sunergy Co. Ltd. (CSUN), based on forward earnings estimates. The above peers, we believe, are more promising in the near term compared with the Zacks Rank #3 (“Hold") SunPower stock.