We start exploring the options of solar stocks as we start with Sunpower Corporation (NASDAQ: SPWR). Sunpower announced its 2014 first quarter results Thursday, April 24, and they signaled that the company is moving in the right direction. GAAP revenues grew 8.97% year-over-year, accompanied by a 23.5% gross margin – compared with the 9.3% from the previous year quarter, and net income of $65 million, or $0.42 per share. While these figures already suggest that investors can trust Sunpower, here are additional positives from the results.
European Grid Parity
In the first quarter, Sunpower grew it revenues from Europe, Middle East, and Africa – EMEA – combined by 83.91%. Although it wasn’t explicitly stated, Europe, most likely, is the main driver of the increase. You will understand this by considering that the
In fact, the company stated in its There we are – ‘improving pricing environment’. The improving pricing environment in Europe is bound to improve SunPower’s revenues from this region. Its distributed generation, or DG, and power plant programs are its strength here.
In a recent It means that, based on levelized cost of energy (LCOE) calculations, consumer solar now competes favorably with retail electricity in these three countries. With such a huge improvement, SunPower’s DG business should grow significantly in this region.
Working Capital Efficacy
In a capital-intensive business like the solar business, it’ll help to keep tabs on how effective a company is at capital management. SunPower, in particular uses its working capital effectively when compared with its industry peers – especially in revenue generation.
The company’s CFO, Chuck Boynton, said in the press release, “We strengthened our balance sheet as we successfully managed our working capital and cash balances.” This made me ask “just how effective has this company been at working capital management?” The chart below gives us insight into this.
Obviously, SunPower’s competitors are many. However, I chose to compare the company with its utility and power plant competitors, since it generates most of its revenues from this segment. These companies keep raising cash to finance the expansion of solar energy.
This year alone, SunPower has raised about $500 million to finance its residential leasing business. SunEdison has also secured over $250 million financing for its projects. First Solar (NASDAQ: FSLR), on the other hand, has been partnering with institutions to expand its utility-scale solar projects – amounts are rarely stated in its case.
With such huge investment in these companies, we need to be sure that they’re using the cash effectively. As the chart above shows, SunPower is doing well with its working capital, compared with SunEdison and First Solar.
How to Trade SPWR Options
I am bullish on Sunpower because of the quality of its demand in European Grid Parity and the respectable management of its finances. I am setting my eyes on the SPWR Sep 2014 35.000 call (SPWR140920C00035000) and you will do well to consider betting big on this solar player.
— Daily Option Alerts