SunPower outlook: why is the market ignoring the guidance?
Posted on 24 July 2009
"Why am I smiling?"
SunPower Corporation (SPWRA), the San Jose-based solar cell producer that claims the most efficient cells on the market, and the leading provider of California commercial and residential solar systems, cut its guidance for the second half of 2009. As we look at the numbers, SPWRA widened the range of uncertainty on its earnings conference call after the close on 7/23/09. The market, and other observers, however, took a more upbeat view.
“SunPower soars 19% on Q2 Beat, Strong Year Forecast”
The company reported Q2 revenues of $298 million, 13% or $35 million better than the consensus estimate of $263 million. The company said the result was better than its own internal goals, and for purposes of the following calculation, we will assume the company’s internal expectation was the same as the street consensus.
With the stock up 19% to $29.54 in after-hours trading, the market was clearly assuming that the 13% revenue “beat” in Q2 implied that a new and higher run rate would be seen from the company going forward. The company described the change in its guidance as an “increase.” It left the top end of the range at $1,700 million and lifted the bottom end to $1,350 million from $1,300 million, a paltry $50 million increase despite the Q2 beat of $35 million. If one looks at the mid-point of the range, it was raised by only $25 million despite a beat of $35 million.
The company’s guidance change works out to an apparent reduction in the second half expectations, although the language on the call implied that things were looking better. Comparing the range before ($1,300 – $1,700m) and after ($1,350 – $1,700m) the quarter is an apples to oranges exercise: The guidance went from three remaining quarters to two remaining quarters. A more relevant apples-to-apples comparison is to look at what the company seems to be saying about the second half of 2009.
Before the second quarter was reported, it was implicitly saying, using the mid-point of its range and assuming it expected to meet consensus in the Q2, the second half would be around $1,023.2 million. (See the table below for our calculations). Now it is saying, using the same method to derive its expectations, that the second half will be about $1,013.2 million, $10 million or 1% lower.
One would expect the company to narrow the range of its guidance range as it goes form forecasting three quarters to two quarters, and it did narrow the range by about $50 million. But the range is now actually wider as a percentage of the midpoint revenue estimate than before.
The discrepancy between the market’s initial enthusiasm and the company’s guidance change will be chalked up by most to a case of a company playing the game of always beating expectations by being excessively cautious with its guidance. In our view, that is a dangerous game and companies that play it usually come to grief if they ever merely meet expectations, or beat expectations by less than the usual amount.
| SPWRA 2009 Revenues (US$ millions) |
Q1 09 | Q2 09 | Q3 09 | Q4 09 | Year 09 | H2 09 |
| Old analyst consensus | 213.8A | 263E | 390E | 463.2E | 1330E | 853.2 |
| Old Co Guidance-Mid | 1500 | 1023.2 | ||||
| High | 1700 | |||||
| Low | 1300 | |||||
| New Co Guidance-Mid | 298A | 1525 | 1013.2 | |||
| High | 1700 | |||||
| Low | 1350 | |||||
| Chg in $ million | 35 | 25 | (10) | |||
| Chg in % | 13% | (1%) |
Source: Capital IQ and E4 estimates.
1 Response to SunPower outlook: why is the market ignoring the guidance?
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