Why SunPower (SPWR) is a solid bet on solar

By Jeff Siegel

I've been singing the praises of SolarCity (NASDAQ: SCTY) since the company first went public. Even as renewable energy bears attacked anything with the word "solar" in the name, I stuck to my guns. And I'm glad I did. Here's a quick look at how SCTY has performed since its debut:

Of course, at this point, SCTY is an easy ride. Even if the company's next earnings disappoint, the long view remains solid. So when the company delayed earnings this week, I didn't lose any sleep.

The fact is, those who took my advice and jumped in early can weather any potentially negative news along the way. We're just that far ahead of the curve.

For those who didn't, there's still plenty of opportunity in the solar space.

This is a Very Big Deal

It was one of the first major solar players to capitalize on the solar bull market back in 2006. Launching from an IPO price of $28.00 to $164.00 in just two years, many thought SunPower Corporation (NASDAQ: SPWR) couldn't be stopped. That is, until the market imploded in 2008. By 2009, SPWR was trading between $25 and $30 a share. And over the next four years, it sunk even further, hitting a low of $3.71.

Of course, it was around late 2012 or early 2013 when we saw the global solar market begin to pick up speed. And while SPWR isn't trading anywhere close to its all-time high of $164.00, had you picked some up at the start of 2013, you would've more than quadrupled your money! That's no joke.

Now here's the interesting thing about SunPower...

Many initially wrote the company off, as it couldn't compete on price with the Chinese. But upon a closer look, you would see that today, the price gap isn't as wide as it once was. In fact, last week, the company announced it had been able to reduce manufacturing costs by 20% last year. That came on the heels of a 25% reduction in balance-of-system costs in 2012.

On the surface, this may not seem like a huge deal. But it is. You see, with this 20% reduction comes the realization that margins are finally competitive. As Giles Parkinson from RenewEconomy recently wrote, "...the company can lift its margins from slightly negative to nearly 20 percent and deliver a solid return to shareholders. Further cost cuts means it will either improve its margins, and therefore its returns to shareholders, or be able to meet price drops in the consumer space if another surge in capacity emerges." I agree 100% with that statement and remain bullish on SPWR going forward, with a price target of $38.

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