SunPower Corporation (NASDAQ:SPWR) is scheduled to release its first quarter earnings report tonight after closing bell. Baird analysts reiterated their Outperform rating and $42 per share price target on the company. They think expectations for tonight’s report are just about right and list a number of reasons SunPower is their favorite solar stock.

Sunpower Corporation

SunPower’s margin could create upside

In a report dated April 22, 2014, analysts Ben Kallo and Tyler Frank said they expect non-GAAP revenue of $696.9 million and non-GAAP net income of $46.1 million. That’s ahead of consensus revenue estimates, which are at $677.7 million, and behind net income estimates at $50.2 million. They’re projecting non-GAAP earnings per share estimate of 29 cents, which lags behind consensus estimates of 33 cents a share. They’re estimating gross margins of 18.3%, which again is behind consensus at 19.6%.

In tonight’s report, the Baird team will be looking for an update of SunPower Corporation (NASDAQ:SPWR)’s Fab 4 expansion and also potential upgrades to the company’s manufacturing line. They believe the company will say it has expanded Feb 4 capacity by about 25%. They also expect the company to report improvements in its efficiency rates.

Shifting the focus to China

The analysts expect that SunPower Corporation (NASDAQ:SPWR) C7 technology and also potential in the Chinese market will be a focus going forward. They note that the company recently sold 70 megawatts of cell packages, and they don’t think investors have given much value to the C7 tech. The sale in China was the first one of the technology.

They believe SunPower Corporation (NASDAQ:SPWR) will keep expanding its international footprint and provide more information about demand in China. The Baird analysts expect SunPower shares to move higher if the company reports any major developments in connection with the C7 technology.

Other potential positives for SunPower

They don’t believe SunPower Corporation (NASDAQ:SPWR) will make a decision about a yieldco until the second half of the year. However, they say it would be a positive no matter when it happens. They think SunPower could provide more information about an asset-backed security or some other financial product designed to support the growth of its residential business.

Why Baird favors SunPower

The Baird team notes that their $42 per share price target for SunPower Corporation (NASDAQ:SPWR) is a premium to competitor First Solar, Inc. (NASDAQ:FSLR)’s share price. However, they think this is valid because SunPower is able to address every segment of the solar market. Also they point to the company’s increasing leasing business, total backing and premium technology.

Other big positives they see to SunPower Corporation (NASDAQ:SPWR) include strong management, what may be the best sales channels in the industry, and the company’s “technology backbone.”