After meeting with management recently, Citi analysts say they continue to see SunPower Corporation (NASDAQ:SPWR) as one of their top picks. They kept the stock on their Citi Focus List for the U.S. and maintained their Buy rating and $39 per share price target for the company. Much of what they said echoes that of what Baird analysts said recently.

Sunpower Corporation

SunPower holds first U.S. mover advantage in China

In a report dated March 30,2014, analyst Shar Pourreza said their meeting with SunPower Corporation (NASDAQ:SPWR) management was “constructive.” They say the company is one of the first U.S. movers in China and note that the company has reached a key milestone in Inner Mongolia.

Recently SunPower Corporation (NASDAQ:SPWR) sold 70 megawatts of cell packages to the Huaxia Concentrated PV Power JV. They see this as “a major breakthrough” because SunPower continues to gain some exposure to China, which was the biggest solar market in the world last year. In addition, SunPower and its U.S. competitors have mostly been shut out of the Chinese market until now.

This year China expects to install 14 gigawatts of solar power. The Citi team thinks that successfully localizing the C7 manufacturing and supply chain likely means good things for solar deployments in China going forward. In addition, they think it helps lower the levelized cost of energy for solar compared to other energy generation sources.

Looking ahead into 2014

The analysts believe SunPower Corporation (NASDAQ:SPWR) will announce an entry level asset-backed security offering at some point this year. They note that this will provide a cheaper source of capital for the company.

The Citi team also reports that SunPower Corporation (NASDAQ:SPWR) continues to make more investments in energy management. Management said they’re currently investing in developing software and also working toward becoming a “vertically integrated energy service provider.” In terms of energy storage, SunPower is still three to five years away. However, currently management plans to outsource batteries from a third party.

SunPower still capacity restrained

The analysts expect SunPower Corporation (NASDAQ:SPWR) to remain constrained in terms of capacity through this year. It is building its 350 megawatt Fab 4 facility in Malaysia, which it expects to have finished by the end of this year. At that time, SunPower expects to be able to produce about 1.3 gigawatts with the addition of more capacity starting the following year.

In 2015, they anticipate adding 50 to 75 megawatts and then 200 to 250 megawatts the following year. They’re projecting a cumulative capacity of about 1.8 gigawatts as of 2017.

The Citi team expects that the new Fab 4 facility will make it possible for SunPower Corporation (NASDAQ:SPWR) to push its cell efficiencies higher while also reducing costs. They believe the new manufacturing line will reduce the cost per watt by as much as 35%. That’s compared to the 20% manufacturing cost decrease and 25% reduction in balance of systems costs last year.

No YieldCo, at least for now

At the recent meeting, SunPower Corporation (NASDAQ:SPWR) management again said that a non-bank lending company, also known as a YieldCo, isn’t planned for this year. However, they will weigh the possibility next year. Either way, Citi analysts see this as a positive. Management said this year they will observe the industry and then make a decision next year about what they will do. They could decide to sell power purchase agreements for back projects to third party YieldCos or form their own YieldCo.

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