This week was full of fireworks in the solar industry. SunPower Corporation (NASDAQ:SPWR) released 2013 guidance, SolarCity Corp (NASDAQ:SCTY) got a big financing deal, and LDK Solar Co., Ltd (ADR) (NYSE:LDK) finally released 2012 earnings. Best of all for investors, most solar stocks moved significantly higher this week.
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Here are the highlights from this week in solar.
SunPower looks into its crystal ball
During an analyst day on Wednesday, SunPower Corporation (NASDAQ:SPWR) released second quarter and full-year 2013 guidance, as promised (the full presentation can be found here). Here’s what management sees going forward.
| Metric | Q2 2013 | 2013 |
|---|---|---|
| MW Recognized | 260 to 280 | 1.0 GW to 1.1 GW |
| Non-GAAP Gross Margin | 14% to 16% | 15% to 17% |
| Non-GAAP EPS | $0.05 to $0.15 | $0.60 to $0.80 |
| GAAP EPS | ($0.25) to ($0.15) | ($0.05) to $0.20 |
Source: SunPower.
If SunPower can report a GAAP profit for 2013, it would be a major milestone for the company. First Solar, Inc. (NASDAQ:FSLR) is the only other major manufacturer making a profit right now, and SunPower has been posting losses for years as the industry struggled with oversupply.
One of the drivers of higher installations and growing profitability is the leasing business, where SunPower Corporation (NASDAQ:SPWR) competes with SolarCity Corp (NASDAQ:SCTY). So far, it has installed 100 MW of residential solar with contracted payments of $541 million. To put this into perspective, this compares with 333 MW installed by SolarCity and $1.22 billion of contracted payments. I’ll get into what this means in a moment.
One interesting data point: In California, the average customer is paying SunPower Corporation (NASDAQ:SPWR) $0.18 per kilowatt-hr for electricity, with a 1% escalator. This is after accounting for the investment tax credit, but it gives an idea how inexpensive solar power has become.
SolarCity goes crazy
The huge winner this week was SolarCity Corp (NASDAQ:SCTY), the residential and commercial solar installer. The company announced a $500 million financing agreement with Goldman Sachs, and suddenly investors flooded into the stock.
This is really business as usual for SolarCity and will finance 110 MW of the 250 MW the company plans to install this year. As installations grow, so will revenue and net income because the leasing business is recurring in nature. The big difference between SolarCity Corp (NASDAQ:SCTY) and SunPower Corporation (NASDAQ:SPWR) is that SolarCity does all of the legwork itself, and SunPower relies on dealers to find and install deals.
There was also an interesting data point between the two companies. In its presentation on Wednesday, SunPower predicted $1.75 per watt in retained value, or the present value of future profits. SolarCity Corp (NASDAQ:SCTY) said it has $1.25 per watt in retained value. SunPower’s number is a more recent data point, but it could point to the main difference in the two companies. SunPower Corporation (NASDAQ:SPWR) is installing more efficient panels in its leases than SolarCity and theoretically has panels that will last longer because of higher quality, based on third-party testing. If both of these things are true, SunPower will generate more income from each project.
What the management of both companies wants investors to do is assume that installations annually times retained value is a direct addition to the companies’ value. So SolarCity Corp (NASDAQ:SCTY) will add $312.5 million (250 MW x $1.25/MW) in value this year, while SunPower will add $166.3 million to $192.5 million (95-110 MW x $1.75/MW) in value this year. That’s the hypothetical value, at least.
It will take time to determine whether SunPower or SolarCity is more efficient in building a leasing network, but there’s plenty of room in the market for both, so it’s just a question of who will operate more efficiently. Today, all we have to go off are projections, and the income statement will tell the true winner over time.
China slips again
Over at LDK Solar Co., Ltd (ADR) (NYSE:LDK), management finally released fourth-quarter 2012 results, and they weren’t good. Sales were just $135.9 million, and shipments were 184.7 MW of wafers and 69.1 MW of cells and modules in the fourth quarter. All told, the company lost $541.7 million in the quarter and $1.05 billion during 2012.
LDK Solar Co., Ltd (ADR) (NYSE:LDK) and Suntech are in similar positions, with billions of dollars of debt and little cash flow to pay for it. LDK Solar Co., Ltd (ADR) (NYSE:LDK)”partially defaulted” on convertible notes in April, and there’s no feasible way either company can pay back debt without a bailout from the Chinese government.
The article This Week in Solar originally appeared on Fool.com is written by Travis Hoium.
Fool contributor Travis Hoium manages an account that owns shares of SunPower and also has long January 2015 $5, $7, $15, and $25 calls on SunPower. The Motley Fool has no position in any of the stocks mentioned.
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