Lazard Gets More Bullish on Solar (STP, SPWR)

Sanjay Shrestha, Managing Director and Senior Analyst of Alternative Energy & Industrials at Lazard Capital Markets has maintained his positive stance on solar companies.  Suntech is scheduled to report 3Q07 results on November 15.  Suntech Power Holdings, (NYSE:STP) was reiterated as a "Buy" rating, but the price target was raised from $45 to $55 in the news coverage.  It also raised estimates following the recent wafer contract announcement that validates longer-term contracts and reflects the competitive advantage of its scale on a global basis.  On Suntech, Shrestha adds, "We would not be surprised to see additional silicon contract announcements from various suppliers including credible Chinese players, as we believe Suntech’s scale provides the company with excellent procurement leverage…. We believe the company is likely to exceed both top- and bottom-line expectations. However, gross margin could remain flat to slightly down, as Suntech has remained focused on its strategy of building scale rather than maximizing near-term margins." Suntech’s new 2009 estimates by Lazard have moved from $1.80 EPS and $2 Billion sales to $2.20 EPS and $2.33 Billion.

On SunPower (NASDAQ:SPWR), Shrestha reiterated a BUY rating after its earnings: Reported revenues and operating EPS were $234.4 million and $0.33 ($0.03 was interest income), vs. Lazard’s estimates of $210 million and $0.28, respectively. Systems revenues were $157.7 million and component revenues totaled $76.6 million. Gross margins were 20.4%, down from 23% in 2Q07 and below Lazard’s expectation of 21.7%.  SunPower modestly increased 2008 guidance and also increased its nameplate production capacity.  Lazard modestly boosted estimates for 2007 to 2009 and introduced 2010 estimates at $4.20 EPS and $2.45 Billion revenues, and raised the price target on the stock from $80 to $105 in the research note.

Shrestha concludes, "Given inherent volatility in the sector, and recent appreciation, we encourage buying on weakness."

The 200 point down market isn’t exactly helping solar investors out today, at least they haven’t held the all-time highs put in right after the open: SunPower Corp. (SPWR) shares are down 2% at $94.92, although the intraday high was a new all-time high of $98.17; Suntech Power (NYSE:STP) shares are down 0.5% at $46.46, although $47.00 is the all-time high before an intraday high of $48.00 today.

Jon C. Ogg
October 19, 2007