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UPDATE: Morgan Stanley Upgrades SunPower (SPWR) to Overweight

December 16, 2014 8:37 AM EST
Get Alerts SPWR Hot Sheet
Price: $3.00 +4.53%

Rating Summary:
    6 Buy, 23 Hold, 15 Sell

Rating Trend: Down Down

Today's Overall Ratings:
    Up: 0 | Down: 0 | New: 0
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(Updated - December 16, 2014 9:40 AM EST)

Morgan Stanley upgraded SunPower (NASDAQ: SPWR) from Equalweight to Overweight with a price target of $35. Analyst Timothy Radcliff thinks there is a 75% probability management will pursue a Yield Co, based on comments from management. He also believes there is a 50% chance First Solar (NASDAQ: FSLR) will launch a Yield Co. In his view, a Yield Co would create significant value for shareholders.

"Although the company still needs to invest heavily in infrastructure to address the distributed generation (DG) market in the US and abroad, we believe that the company fundamentally offers lower risk access to the highly profitable market given the state of technology today. SunPower's monosilicon technology is already suitable for the DG segment (as evidenced by heavy exposure to distributed generation and otherwise space constrained markets around the world today), and therefore does not rely on aspirational improvements in cost-adjusted performance the way First Solar does. We also believe that Total's backing of SunPower can accelerate growth and fundamentally lower the company's risk profile given access to relatively affordable capital," said Radcliff.

"For these reasons, we believe that investors are likely to give more credit for growth at SunPower after 2016, which could mean that the stock discounts significantly more medium- and long-term growth – which are crucial for meaningful IDR contribution to overall valuation," continued the analyst.

"SunPower also has a relatively large fleet of operational or near-operational projects that could be included in a late 2015 Yield Co launch, whereas First Solar's operational fleet is meaningfully less mature at this point in time," he added. "For all of these reasons, we believe that a Yield Co is a more compelling strategic option for SunPower, and combined with recent rhetoric from management describing the structure of a potential Yield Co and specific criteria for launching one, we ascribe a 75% probability that SunPower announces the launch of a vehicle in the coming quarters."

For an analyst ratings summary and ratings history on SunPower click here. For more ratings news on SunPower click here.

Shares of SunPower closed at $23.26 yesterday.



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