Solar Power's Sizzle in 2011 (SPWRA, FSLR, STP, TSL, TAN)

For a while there in 2010, investors didn’t show much love for the solar stocks. But that changed almost overnight since January 1st. SunPower Corp. (NASDAQ: SPWRA) shares are up about 40% since the beginning of the year. Suntech Power Holdings Co. Ltd. (NYSE: STP) is up more than 30%, First Solar Inc. (NASDAQ: FSLR) is up about 30%, Trina Solar Ltd. (NYSE: TSL) is up about 25%, and even the Guggenheim Solar ETF (NYSE: TAN) is up more than 20%. For some reason, doubts raised last year about the solar makers’ ability to cope with rising capacity and lower prices evaporated.

SunPower reported fourth quarter and full-year earnings last week, and provided guidance for the first quarter and full year ahead. Gross margin forecasts on a GAAP basis for the quarter and for the year are both lower than the fourth quarter of 2010 or the full year. The company expects a first-quarter loss of -$0.03 to -$0.09 on a GAAP basis and a full-year GAAP EPS of $0.70-$0.90. For the fourth quarter of 2010, GAAP EPS was $1.44 and full-year GAAP EPS was $1.75.

The company posted full-year revenue in 2010 of $2.22 billion, and is forecasting 2011 revenue of $2.8-$2.95 billion. As margins fall, SunPower has to sell more. The company claims a project pipeline of 5,000 megawatts, and plans to have its Malaysian plant on line in time to produce a third of its modules by the end of 2011.

SunPower is planning to reach an efficiency-adjusted solar panel cost of manufacturing of $1.08/watt by the end of 2011. First Solar has achieved a cost of $0.76/watt already. As we’ve noted before, though, supply is expected to outstrip demand in 2011.

As subsidies fall in Germany and Italy, solar makers are counting on US sales to pick up the slack. An investment tax credit in the US is available until 2016, giving solar makers a solid five-year window that excludes policy risk.

However, it could be that engineering and construction firms will order panels direct from a manufacturer and do the installation work themselves, tossing a monkey wrench into plans by solar makers like SunPower and First Solar that have acquired project pipeline businesses. Chinese manufacturers like Suntech and Trina could reduce prices to levels where SunPower or even First Solar would have difficulty competing.

First Solar reports earnings later this week, and is expected to post quarterly EPS of $1.76 and full-year 2010 EPS of $7.63. Trina Solar is scheduled to report earnings tomorrow. Analysts are expecting quarterly EPS of $1.09 and full-year EPS of $3.35. Suntech reports earnings on March 1st, and is expected to post quarterly EPS of $0.29 and full-year EPS of -$0.37.

Paul Ausick