Suntech Power Holdings Co., Ltd. (ADR) (STP), SunPower Corporation (SPWR): Why This Solar Stock Might Present a Bargain

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The biggest challenge for solar power companies has always been to reduce costs and attain sustainable profitability. SunPower Corporation (NASDAQ:SPWR) has yet to achieve this goal, but it is making strategic moves to improve its future potential.

SunPower’s strategic moves

SunPower Corporation (NASDAQ:SPWR)In late June, President Obama announced his Fresh Climate Change strategy, with a focus on reducing emissions from coal plants. SunPower Corporation (NASDAQ:SPWR)’s stock appreciated approximately 20% over the next month, alongside similar gains in other U.S. solar players. However, the stock has since retreated back to the same level it traded at prior to the announcement.

SunPower Corporation (NASDAQ:SPWR) also recently partnered with KB Home to produce 1,500 solar-powered homes. KB Home and SunPower recently celebrated their 1,000th home and nearly $1 million in annual savings for solar-panel users.

Altogether, SunPower Corporation (NASDAQ:SPWR) supplies seven homebuilders in the United States, which has led to 10,000 new homes with solar panels over the past two years. By the end of 2013, 20% of new homes in California are expected to have solar power; SunPower currently owns 80% market share for solar homes in the state. SunPower also offers 0% down financing to expand the reach of its third-party ownership finance model.

Total’s backing of SunPower Corporation (NASDAQ:SPWR) also plays a major role in SunPower’s potential. This relationship has led to lower borrowing costs for SunPower (saving between $1 million and $10 million per contract), and a strong possibility for Middle East and Africa expansion thanks to Total’s ties. Total wants to bundle fuel contracts with solar panels, and it sees a potential new market in the mining industry, where solar can be used as opposed to diesel.

SunPower expects FY2013 revenue of $2.5 billion to $2.6 billion, and net income per diluted share of $1.00 to $1.30. The company also aims to achieve the following goals by 2015:

1). Double its customer base
2). Improve panel efficiency 10% to 23%
3). Decrease cost-per-watt by 35%

If SunPower CEO Tom Werner is correct about photovoltaic panels becoming a standard for new home construction, then doubling the customer base will be easy. That type of growth would then lead to increased cash flow, which could increase R&D, and then lead to finding ways to improve panel efficiency and reduce those panels’ cost per watt. Based on the company’s success in California, this could become a reality.

SunPower has already spent a lot of time and money on R&D, with a focus on solar-panel efficiency. As a result, SunPower’s solar panels convert as much as 24% of sunlight into energy — which represents up to 50% more than conventional panels.

First Solar is also making strategic moves

When it comes to strong upside potential, rival First Solar is often brought up along with SunPower. However, the two companies have many differences, which may give one stock more potential than the other.

First Solar now offers several services in addition to just solar panels, including utility-scale generation, industrial power, and fuel replacement. This kind of diversification may limit its downside potential if the solar industry weakens.

As part of its broadened efforts, First Solar is set to construct New Mexico’s largest solar plant, and it will supply 50 megawatts of solar power to El Paso Electric for the next quarter-century. This deal will add 300 construction jobs, provide clean energy to 18,000 homes, and displace more than 40,000 metric tons of CO2.

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