FBR, Piper Jaffray Downgrade Sunpower (SPWRA) Following Accounting Errors

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08:37:13 am on November 17, 2009

Last night it was announced that Sunpower was investigating some accounting errors at its Philippine operations and this morning the downgrades are flowing.

Piper Jaffray downgraded from Overweight to Neutral and lowered the price target from $38 to $31.

Hat tip to StreetInsider.com for the analyst comments:

“SPWR announced accounting errors that may have underestimated costs in its Philippine manufacturing plant for both 2009 and 2008. The magnitude of the COGS understatement could be $14M in q2, $15M ytd, and $9M in 2008. Given the magnitude of the changes to COGS, and the investor controversy of SPWR’s higher cost structure relative to Chinese OEMs, we move our rating to Neutral and lower our PT to $31 on potentially higher costs. We believe the stock will likely remain penalized until further information is disclosed. The company is not providing further color on the nature of the error. We will reconsider our rating once the magnitude and scope of the accounting audit are complete, at least 30 days per the company press release.
We calculate the impact to Q2 as $0.21 per watt ($14m for 67.5mw of sales). We are unsure if the potential restatement is due to its JV structures for ingots or wafers, prepayments of polysilicon, or some other issue. We prudently increase our cost per watt estimates which leads to lower GM and EPS. We lower our 2010 GM to 19.7% from 20.6% and 2011 GM to 19.5% from 21.0%. As a result, our 2010 PF EPS estimate declines 9% to $1.92 from $2.10 and our 2011 PF EPS forecast declines 12% to $2.56 from $2.90.”

FBR Capital downgraded from Outperform to Market Perform and cut the price target cut from $38 to $30.

“Although SPWRA’s announcement from last night regarding the possibilities of restating some of the past quarterly financial reports may be purely a reflection of conservative accounting and governance procedures, we still find it prudent to move to the sidelines (for now) until the company provides additional color/details behind the accounting errors (particularly as they relate to the “cost” recognition for the operation in the Philippines). We note that we did reduce our CY10 estimates in early November when we realized that the full impact of a new FIT program in CA will not become material until 2H of the CY10 time frame. The accounting errors announced from last night adds an additional layer of uncertainties, this time associated with the cost structure and cost assumptions (in our model). We are therefore reducing our estimates/price target and moving to the sidelines until additional color and detailed information is provided by the company.”

“Our pro forma EPS estimates for CY09, CY10, and CY11 have changed from $1.30/$2.07/$2.82 to $1.26/$1.93/$2.63, while our GAAP EPS estimates have changed from $0.66/$1.24/$2.00 to $0.62/$1.10/$1.81.”

Shares of Sunpower (SPWRA) are now off about 15% in premarket trading.

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