SunPower... Is Lower Earnings Guidance Good? Blame Italy (SPWRA, TOT)

Lower guidance is supposed to be bad, right?  While that is normally the case, it seems as though guidance from SunPower Corporation (NASDAQ: SPWRA) is acceptable enough despite the margin and profit pressure persisting ahead.  Sometimes lower guidance is acceptable if the valuations reflected after the warning are still cheap.

Revenue for the current quarter is forecasted to be $550 million to $600 million with earnings of ($0.05) to $0.10. For the current quarter, Thomson Reuters estimates are $0.23 EPS and $541.98 million in sales.  For the year, the revenues were put at $2.80 billion to $2.95 billion and non-GAAP income was put at $1.20 to $1.70 EPS.  Thomson Reuters estimates are $1.79 EPS and $2.69 billion in revenues.

On the high-end of the matrix that would generate a forward P/E ratio of almost 17.5.  On the low-end that is about 12.3, and in the middle of the range that is about 15-times non-GAAP earnings.

The biggest issue focuses on changes to Italian solar policy this year.  The impact will be significant on the global solar market.  The company claims to have rebalanced its product allocation in Italy away from power plants and toward the European residential and commercial business where demand remains strong. Still, the company does note that systems sold through its R&C channel yield less profit per watt than systems deployed in self-developed power plant projects.  in short, our thesis of lower and lower margins is remaining intact.

Perhaps the biggest issue is the company’s comment about the road ahead.  It noted, “we expect the current global pricing pressure to persist through 2011 and, as a result, we are planning full-year 2011 non-GAAP gross margins to be in the range of 17% to 19%.”

SunPower claims to be taking aggressive steps to “actively manage manufacturing and operating expenses” and that it is working with suppliers “to modify contracts to reflect current market conditions.”

The company believes that its balance sheet management and manufacturing optimization will coincide with the $1 billion credit support agreement with Total (NYSE: TOT) to position it to gain market share profitably.

2011 GAAP results will be impacted by certain “one-time, pre-tax charges” of $14 million to $29 million related to its reallocation strategy, including $11 to $21 million in the second quarter. SunPower also expects GAAP results in Q2 to reflect $13 to $15 million in pre-tax expenses related to the outstanding Total tender offer.

SunPower shares closed up 0.5% at $20.95 against a 52-week range of $9.61 to $22.60.  Before the Total-deal was announced, SunPower shares were at $16.12.  After the deal was announced, the shares rose to $21.69 that day.  Total did not acquire the company outright but the street is treating it as though the floor is now considerably higher than before the terms were announced regardless of what comes out of Italy.  At the same time as the guidance call, SunPower and Total did announce that the firms confirmed their intention to close on the Total transaction where it would buy 60% of the A-Shares and B-shares at $23.25 per share.

SunPower shares are currently indicated right at $20.95 as the last after-hours trade and there have been some 68,627 shares traded as of 4:25 PM EST per the NASDAQ after-hours quote system.

JON C. OGG