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We have upgraded our long-term recommendation on the solar company SunPower Corp. (SPWR - Analyst Report) to Outperform from Neutral on Sep 19, 2013.

Why the Upgrade?

SunPower is one of the most forward-integrated solar companies, focused on moving up the value chain. Its customer base is spread across North America, Europe, the Middle East, Asia and Australia. In addition to a sizeable presence in the U.S., it is already focusing on improving market share in France, Germany, Italy, Spain and Japan, while gaining new market share in the emerging solar markets of England, Greece, Israel and Malta.

The company delivered strong second quarter results, swinging to profit from the loss incurred in the year-ago quarter. Its stellar results were backed by strong demand for its solar panels in utility, commercial and residential projects. During the second quarter, the company’s total production improved 42.3% sequentially to 296 MW while utilization reached 100%.

SunPower also raised its outlook as it anticipates a 10% reduction in operating expenses this year given the strength across regions and end markets. Looking ahead, SunPower seeks to establish itself as the leader in high performance solar power products.

SunPower’s solar cells have one of the highest conversion efficiencies available for the mass market. Higher conversion efficiency has also led to improved silicon utilization. Management also hinted that capacity expansion is on the cards for 2014 to meet rising demand..

The second quarter saw a boom in production for SunPower, which is likely to sustain in the coming quarters given the rising trend in the renewable market. From a valuation perspective, SunPower’s current trailing 12-month earnings multiple of 46.2 is trading at a premium to the peer group average of 27.5.

Other Stocks to Consider

SunPower currently holds a Zacks Rank #1 (Strong Buy). Other attractive stocks in the solar space include JA Solar Holdings Co. Ltd. (JASO - Analyst Report), JinkoSolar Holding Co., Ltd. (JKS - Snapshot Report) and LDK Solar Co. Ltd. , all sporting a Zacks Rank #2 (Buy).

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