Value Vs. Growth Issues of SunPower (SPWR)

SunPower Corporation (NASDAQ: SPWR) is under a tremendous amount of pressure so far after the company posted earnings that were above expectations.  The solar giant beat EPS targets by $0.10 with $0.61 EPS and posted a 120% rise in revenues of $382.8 million (estimates $343.1 million).

The problem is that guidance for Q3 looks mostly in-line with estimates, despite its higher 2008 guidance.  The company also raised 2009 guidance, but these are not substantially above estimates.

• For Q3 it sees $0.53 to $0.57 EPS and revenues of $340 to $355 million, while First Call has estimates of $0.57 EPS and $346.8 million in revenues.
• For Fiscal-2008 it sees $2.26 to $2.36 EPS on $1.39 to $1.44 Billion, while First Call estimates are $2.08 EPS on $1.36 Billion in revenues.
• For Fiscal-2009 it sees around $3.50 EPS on $2.0 to $2.1 Billion in revenues, which compares to First Call estimates of $3.41 EPS and $1.94 Billion in revenues.

The facts are that the report itself was a solid one for the quarter.  But the guidance wasn’t enough to please an ever-growing demand from investors who look at the current trailing P/E ratio of 100+.

So how do these valuations stack up for 2008 and 2009?  There has already been an 8% haircut on the stock to $73.50 and its market cap is about $6.25 Billion.  If you take the top-end of its guidance for 2008 we get forward multiples of 31-times earnings and about 4.3-times revenues.  For 2009’s forward multiples we get a derived 21-times earnings and 2.9-times forward revenues.

Traders are divided into groups who want to see blowout earnings followed by blowout guidance and others who look at valuations of today and valuations of tomorrow.  At some point, those forward multiples may look cheap enough to entice both groups.

While shares are down over 50% from the late 2007 highs, these shares are still up about 200% from late 2005 when they first started trading.

Jon C. Ogg
July 17, 2008