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SunPower Corporation (NASDAQ: SPWR) is under a tremendous amount of pressure so far after the company posted earnings that were above expectations.  The solar giant beat EPS targets by $0.10 with $0.61 EPS and posted a 120% rise in revenues of $382.8 million (estimates $343.1 million).

The problem is that guidance for Q3 looks mostly in-line with estimates, despite its higher 2008 guidance.  The company also raised 2009 guidance, but these are not substantially above estimates.

• For Q3 it sees $0.53 to $0.57 EPS and revenues of $340 to $355 million, while First Call has estimates of $0.57 EPS and $346.8 million in revenues.
• For Fiscal-2008 it sees $2.26 to $2.36 EPS on $1.39 to $1.44 Billion, while First Call estimates are $2.08 EPS on $1.36 Billion in revenues.
• For Fiscal-2009 it sees around $3.50 EPS on $2.0 to $2.1 Billion in revenues, which compares to First Call estimates of $3.41 EPS and $1.94 Billion in revenues.

The facts are that the report itself was a solid one for the quarter.  But the guidance wasn’t enough to please an ever-growing demand from investors who look at the current trailing P/E ratio of 100+.

So how do these valuations stack up for 2008 and 2009?  There has already been an 8% haircut on the stock to $73.50 and its market cap is about $6.25 Billion.  If you take the top-end of its guidance for 2008 we get forward multiples of 31-times earnings and about 4.3-times revenues.  For 2009’s forward multiples we get a derived 21-times earnings and 2.9-times forward revenues.

Traders are divided into groups who want to see blowout earnings followed by blowout guidance and others who look at valuations of today and valuations of tomorrow.  At some point, those forward multiples may look cheap enough to entice both groups.

While shares are down over 50% from the late 2007 highs, these shares are still up about 200% from late 2005 when they first started trading.

Jon C. Ogg
July 17, 2008

SunPower (NASDAQ: SPWR) has posted $0.39 Non-GAAP EPS on revenues $273.7 million.  This translates to $0.15 GAAP EPS.  These numbers are above plan according to First Call estimates of $0.35 non-GAAP EPS and $245.2 million in revenues.

The company is also raising guidance. It sees Q2 2008 non-GAAP EPS $0.48 to $0.52 on $330 million to $350 million revenues, which compares to estimates of $0.46 EPS and $295 million in revenues.  It also sees non-GAAP gross margin of 23% to 24%. For fiscal 2008 the company sees non-GAAP EPS of $2.10 to $2.20 on $1.3 billion to $1.375 billion revenues, while First Call has estimates at $2.07 EPS and $1.27 Billion in revenues.

It is also reconfirming 2009 forecast for total revenue to increase at least 40% from 2008 levels. If we interpolate this it translates to "at least" $1.82 Billion to $1.925 Billion, which compares to First Call targets of $1.88 Billion.

SunPower also noted that it is still aggressively expanding solar cell production by more than 150% in 2008 compared to 2007.  It expects silicon supply costs to decline by approximately 10% during 2008 and expects to reach its targets of 30% gross margin, 10% operating expenses and 20% operating margins on a non-GAAP basis, no later than the first quarter of 2009.  It also believes that 100% of projected solar cell production is secured with contracted silicon through 2010, and below is a table of its expected output:

MEGAWATT CAPACITY         2008    2009   2010
Nameplate capacity:                214     414     574
With Silicon Agreements:        255     450+    650+

Shares of SunPower are seeing a bit of a "sell the news" this morning and are trading down by more than 3% at $96.00 in pre-market trading.  The 52-week trading range is $51.00 to $164.49.  Based on yesterday’s close, these forecasts would give the company roughly a 47.4 to 45.2 forward P/E ratio (non-GAAP).

Jon C. Ogg
April 17, 2008

Jon Ogg produces the Special Situation Investing Newsletter.  He can be reached at jonogg@247wallst.com and he does not own securities in the companies he covers.