Tuesday, May 5, 2009

SunPower News: Share Offering and Convertible Debentures

Over the past couple of months prior to this week, SunPower's SPWRA class A stock has been hovering just a few dollars above it's 52 week low of just over $18 a share. Over the coarse of the last two months It has consistently under performed compared to the rest of The Green Market's solar stock picks.

There are a lot of good reasons why, even in today's economy, solar is attractive to investors. Early in the year, The Green Market ignored the pundits and benefited from SPWRA's advances through market timing that capitalized on the Obama Effect. However as predicted by The Green Market, the recession has caused volatility even amongst solar's strongest players. None of The Green Market's solar stock picks have been impacted more than SPWRA. As of last week SPWRA was down 32.3 percent for the year making it the biggest loser amongst The Green Market's solar stock.

The last couple of months have been interesting for the solar sector and SPWRA has seen even more erratic movement than it's solar peers. For the week ending on March 7 SPWRA led losses in The Green Market's solar stock and declined by 16 percent. Even when stocks were up, SPWRA showed the smallest increases. For example, for the week ending on March 14 when the stock market was experiencing its best week since November 2008, as all the Green Market Stock were seeing double digit advances (led by ESLR's 37 percent), SunPower posted the smallest gains of only 4 percent.

On April 23, 2009 SunPower reported a $4.8 million loss in the first quarter, as demand was hurt by the credit crunch and the weak economy. It also cut its earnings outlook for the year. These results were well below Wall Street expectations and this sent shares down 7 percent in after-hours trading.

As the firms CEO, Tom Werner in a statement, "The first quarter of 2009 was the most challenging quarter we've seen since SunPower went public in 2005. We have responded to current market conditions by moving to a demand-driven manufacturing model and reducing our planned operating expenses to align with our adjusted revenue outlook."

Mehdi Hosseini of Friedman Billings Ramsey wrote, "continued weakness in end-market demand, uncertainties associated with the business model for both SPWRA and First Solar and increased downside risk to company management guidance/consensus estimates are keeping us on the sidelines and actually have us incrementally more cautious into Q1 earnings."

In a bid to raise capital, SunPower Offered shares of class A common stock and senior convertible debentures last Tuesday, April 28. Convertible debentures are equity shares issued at a premium on the present value in the future. SunPower intends to use the proceeds for general corporate purposes, operational expenses (e.g. debt repayment) and working capital. This includes acquisitions and strategic transactions of business, technologies, or products.

Convertible debentures can enable a company to secure capital less expensively. Convertible debentures can also offer a security measure from erroneous risk analysis and extenuate difficulties related to financing.

SunPower's public offerings of shares and debentures closed yesterday, Monday, May 4. In a statement, SunPower said it received $417.6 million from the offerings of 10.35 million shares of class A common stock and $230 million of 4.75 percent senior convertible debentures due 2014.

From the issuers perspective the key benefit of raising money by selling convertible bonds is a reduced cash interest payment however in exchange for the reduced benefit of interest payments the value of shareholders equity is reduced to the stock dilution when bond holders convert their bonds into shares. Yesterday SunPower announced that the offering of common stock and sale of convertible debentures will reduce the company's 2009 earnings per share by about 10 percent from its most recent forecast.

In this recession, financing is important to everyone in the solar industry, it is also vital for SunPower to maintain economies of scale. Other solar firms like SunTech (STP) are managing growth and their solar panels are now price competitive with SunPower. To remain competitive SunPower Corp. had to find ways to finance large scale projects and acquisitions.

Raising capital will only enhance SunPower's staying power in this difficult market. Although we may not yet be out of the woods of recession, two months of growth in the stock market indicate that this is more than a rally in a bear market. Although more volatility can be expected, increasing oil prices should help the solar sector. As of the opening of markets today, SPWRA was over $30 dollars a share.

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