North Coast Solar Stocks

November 17, 2009

SunPower Crumbles; Multiple Downgrades On Accounting Mess

Filed under: SPWR — Tags: , , , , , — Jason @ 11:21 am

By Eric Savitz

SunPower (SPWRA, SPWRB) shares have cratered this morning after the company late yesterday disclosed an internal investigation of accounting practices at its Philippine operations, warning that it may have to restate results from 2008 and the first three quarters of 2009. In particular, the company said cost of goods sold appears to have been understated for the June and September quarters.

The disclosure has triggered a wave of mostly negative commentary from the Street, including a number of downgrades.

* Caris & Co. analyst Ben Pang cut his rating to Below Average from Average, with a new target of $21, down from $35. “We think the issue calls into question the profitability and earnings trends for the company and could also impact SPWRA’s ability to win certain contracts,” he writes in a note.
* Piper Jaffray analyst Jesse Pichel cut his rating to Neutral from Overweight, with a new target of $31, down from $38. Pichel notes that the stock has been moved to the “penalty box,” given the magnitude of the changes to cost of goods sold from the restructuring, and investor controversy over the company’s higher cost structure relative to Chinese solar companies. “We believe the stock will likely remain penalized until further information is disclosed.”
* FBR Capital analyst Mehdi Hosseini cut his rating to Market Perform, from Outperform. He says it is “prudent to move to the sidelines” until the company provides more details on the issue.
* Raymond James analyst Pavel Moldhanov cut his rating to Market Perform from Outperform. “The broader concern…is the very fact of accounting irregularities, however minor they may be,” he writes.

Meanwhile, analysts already bearish on the stock remain bearish.

* Bank of America/Merrill Lynch analyst Steven Milunovich repeated his Underperform rating. “The even raises questions regarding the containment of this particular issue and the strength of the company’s internal controls,” he writes.
* Pacific Crest analyst Mark Bachman likewise repeated his Underperform rating. “We remind investors that SunPower had to lower EPS guidance by 50 cents roughly one year ago due to accounting issues related to tax planning and foreign currency hedging,” he writes. “Two significant near-term accounting issues should raise investor concerns, and should also call into question whether SunPower has the proper accounting controls in place.”
* Gordon Johnson, Hapoalim Securities: “We believe this move implies further risk to management’s credibility, which, as we have written about before, remains a concern of ours with respect to incremental investment in SunPower,” he writes. Johnson maintains his Sell rating, adding that “at risk of stating the obvious, yesterday’s restatement strongly supports our thesis.”

SPWRA today is down $5, or 18.4%, to $22.23.

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