SunPower/AUO J-V Only Prelude to More Solar M&A Activity (SPWRA, SPWRB, AUO, WFR, AMAT)

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SunPower Corp. (NASDAQ: SPWRA, SPWRB) is following the trend of deals in the solar sector.  This is a Joint Venture rather than real M&A, but it has announced a definitive agreement to form a joint venture with AU Optronics Corp. (NYSE: AUO) in Taiwan that will own and operate SunPower’s 1.4 gigawatt third solar cell fabrication facility under construction in Malaysia.  SunPower and AUO will equally own the JV and contribute equal capital funding.  Today’s news only further adds on to speculation around the notion that more joint ventures and more M&A is coming from the likes of First Solar Inc. (NASDAQ: FSLR), MEMC Electronic Materials, Inc. (NYSE: WFR) and others.

MEMC Electronic Materials, Inc. (NYSE:WFR) has announced two deals this week, on in M&A and one in a J-V.  Applied Materials Inc. (NASDAQ: AMAT) also took its chip-equipment prowess into being a supplier for the global solar power opportunity.

After all this is said and done, the solar sector claims that it can create 200,000 jobs.  Also, if these companies play their cards right we named several which could be big hidden winners of the oil spill from BP in the Gulf of Mexico.

As far as the joint venture announced today, the analyst at Lazard Capital Markets has reiterated his BUY rating (and whopping $29 target) on SunPower because of the benefits.  Lazard’s Sanjay Shrestha said the joint venture accelerates the cost reduction roadmap and also ramps up the benefits of scale (higher production at lower cost), while increasing SunPower’s balance sheet flexibility.

There is opportunity here.  The question comes down to whether or not the companies can drive down their costs of manufacturing each cell in a manner close to how fast solar panel prices are dropping around the world.  There are huge opportunities still present, but many will unfortunately be left in the dust.

SunPower’s “A” shares are up almost 20% at $12.89 on active trading today.  The company is one of the few profitable names with low valuations and that is still expected to post top-line and bottom-line growth from operations on the horizon.

JON C. OGG