A relatively little known manufacturer of solar energy products has scored a big win today, as Akeena Solar (AKNS) announced its panels will be made available at Lowe’s (LOW).  Akeena makes the Andalay AC panels which are the first solar panels aimed at allowing the do-it-yourself crowd to install on their homes.  The panels can be installed on homes with relative ease and are equipped to produce household AC power without the hassle and potential danger of converting higher voltage of DC power to AC.  In October, the design of these panels was awarded as a 2009 Popular Mechanics Breakthrough Product because it represents a potentially major shift in the solar industry towards “plug-and-play” solar power.

Thus far, the distribution at Lowe’s is still confined to only 21 stores in California, but it is a foothold to one of the largest home improvement retailers.  Surely, if Akeena can show strong sales in its initial roll out it would mean wider distribution.  At this point, pricing remains difficult to find on the Andalay panels, and undoubtedly that will be a major determining factor in success of the product’s sales.  That being said, the ease of installation should enable greater adoption of their products and may be a major breakthrough.

Akeena Solar stock has been beaten down tremendously over the past two years falling to below $1 from its lofty price in the nearly $16 in January of 2008.  The distribution deal with Lowe’s has traders and solar enthusiasts excited for the potential, and the stock is trading 54% higher in morning trading.  We have only recently initiated coverage on AKNS as Fairly Valued, and although we think there is great potential in these products, we would not upgrade the stock until the fundamentals actually begin to show improvement. 

At this point, the company is still highly speculative, and investors who missed the more than 50% rise in the stock may want to wait for a dip.  The company is still young with only $41 million in revenue last year and has yet to turn a profit.  This trade would be speculative for sure, but Akeena’s announcement today is providing a lot of excitement.

Jim Cramer reiterated his bullish stance for the direction of the market, despite the substantial gains in many equities over the last five months.  After Monday’s ugly selloff, Cramer was heartened by the return to positive returns on Tuesday and used the reports from Home Depot (HD) and Target (TGT) as evidence that back to school and home improvement spending may not be as weak as some analysts had suspected.

“Okay, let me give you this view of things. First, today, Target and Home Depot just joined Kohl’s and Walmart saying that sales and profits are getting better. To me, target and Home Depot close to — that is retail, isn’t it? I mean, if we’re not going to have a back-to-school season, wouldn’t they know? Walmart and Target are the two biggest back-to-school stores in the country and they say they’re encouraged about back-to-school season.” — CNBC’s Mad Money 8/18/2009

Later in the show, the discussion turned back to why Cramer likes Home Depot over its home improvement competitor Lowe’s (LOW).  Among his reasons is the exceptional job that CEO Frank Blake is doing to streamline inventory and improve customer service.  Home Depot has been in recovery ever since the departure of Bob Nardelli, and the efforts are starting to pay dividends.  In contrast, Lowe’s is blaming its recent struggles on the behavior of consumers, which is never a good sign.  Cramer goes on to say Lowe’s is holding too many expensive items in inventory that consumers simply cannot afford right now.

The bottom line is that Home Depot is executing in a difficult environment while Lowe’s was resistant to adapt to this environment.  That is why Lowe’s missed their numbers, while Home Depot exceeded expectations and raised guidance.  According to Cramer, next stop for Home Depot is $30, and by our value methodology, we cannot disagree as the current improving fundamentals HD could reach the mid-$30’s relatively soon.

For more details on this and other discussions from last night’s Mad Money, please visit our Mad Money recap page.

The conventional wisdom held that Costco (COST) would fare better than most because of its wholesale prices for bulk purchases.  Thus far that theory has shown to be pretty true, at least in comparison to most retailers.  But as the warehouse retailer reported third quarter earnings Thursday morning, it was clear that the higher end items for sale at Costco were not selling as well as analysts hoped.  Discretionary spending continues to be a sore spot for retail as consumers put bigger purchases off for a hopefully more certain future.  This has been a continuing theme for big-box retailers reporting recently including The Home Depot (HD) and Lowe’s (LOW) last week.

“Costco down. Everyone says the consumer has traded down benefits the wholesalers. You look at the earnings where they miss slightly and you wonder what’s happening. They’re getting hurt by a couple of things here. One is the higher end retail of the tape, discretionary, not selling as many as their flat panel TVs, et cetera. Also, what hurt Costco is not a good litmus test for the American consumer because the strong dollar hurt their international sales and lower gas prices year over year hurt their domestic sales because when they were selling gas at $4.” Squawk on the Street 5/28/2009

The results also took a hit from a stronger dollar producing international same store sales slumping 12%, which was far worse than U.S. comparable sales that were also down 5%.  Costco reported earnings of just 48 cents per share which missed consensus estimates by 5 cents.  Revenue sagged by 5% in the quarter finishing with $15.8 billion of sales in the period.

Even though the past quarter was not especially impressive by Costco, considering competitor BJ’s Wholesale (BJ) just reported a good quarter and raised guidance, Ockham has an Undervalued rating on COST shares.  As Costco’s fundamentals have started to slack recently, the stock price has fallen to low enough levels to keep the shares attractive from our valuation methodology.  Given the current fundamentals, Costco is not extremely undervalued, but we believe the stock could justify a price in the range of $53 to $60 given current sales and cash.

The crew on CNBC’s Fast Money can be counted on to quickly cover all of the major market-moving stories each trading day.  Today, a lot of the focus was on financials as Bank of America (BAC) was added to the conviction buy list at Goldman Sachs (GS), and the accompanying price target was nearly doubled from $7 to $13.  However, since that story broke this morning, there were much fresher stories on the minds of the traders, namely that 3 major banks Goldman Sachs, Morgan Stanley (MS), and JP Morgan (JPM) officially applied to pay back the TARP fund to the government after the bell.  Every one of these institutions is eager to get the government’s influence out of their affairs, especially executive pay.

“I know what you’re talking about financials here. I think the real news was by the end of the day we really had affirmation that the three biggies, the three most popular, Goldman, Morgan Stanley, JP Morgan, were going to pay back that was news we even talked about on Friday. The real question is is that news that is to take these guys to the next step higher?…People are starting to read into this, and they are seeing when these things come out and they hit them too hard. They want in because they have seen time and time again the reaction from the market has look at Morgan Stanley at $24. Look at Goldman Sachs at $120. Each one of these has actually performed very, very well. USB — or U.S. Bank the other day, that suffered for a while and now it’s back up trading 19 bucks. Everybody seems to be making the turn upward. ” CNBC’s Fast Money 5/18/2009

Later the conversation turned to the home improvement stores like Lowe’s (LOW) and Home Depot (HD).  Of course, Lowe’s reported far better than expected first quarter results today  and Home Depot will report tomorrow.  The guys expect more of the same from Home Depot, a little better than expectations, but the stock wont have as much of a pop after today’s run up.  The conversation turned to tech as it often does.  For the full recap of CNBC’s Fast Money, visit the show recap page at Ockham.  To see all of the stocks that were mentioned take a look at the chart to the right.

Lowe’s (LOW) home improvement stores reported first quarter earnings that were better than even the most bullish of analysts estimates.  Of the 16 analysts that follow LOW, the expected range for first quarter EPS was $.20 to $.29 with $.25 as the general consensus.  However, due to exceptional cost cutting efforts the second largest home improvement store brought in about $.32 per share and revenue decreased 1.5% to $11.8 billion.  The drop in sales was a disappointment but still significantly better than the estimates which called for a decline of about 3.2%.  The cost cutting lead to better gross margins which were 35.5% from 34.7% a year ago.  The improvement in margins was a surprise somewhat as much of the sales were in small ticket items instead of the big ticket high margin items.

Even though same store sales were down 6.6% from last year, the improved performance spurred management to lift its full year EPS guidance to $1.13 to $1.25 from the previously reduced estimates of $1.04 to $1.20.  Undoubtedly, this quarter was a success, even as net income and sales both were down from last year.

“…for maintenance, repairing and also growing their own gardens. That do-it-yourself trend is good news for the hard-hit home goods business. But these frugal habits are really a mixed blessing for Lowe’s because consumers still aren’t spending on the big ticket items like special order and installment businesses, which are weak. But relative strength did help Lowe’s beat earnings expectations by about 7 cents. Revenue, though, is down. That’s the problem. Stores sales fell 6.6% and Morgan Stanley’s analysts are now concerned that inventory isn’t shrinking fast enough. Even though there are fewer transactions, Lowe’s is making more profit on them. Gross margins improved and prices aren’t being slashed. So that has management willing to inch back up their earnings forecast, upping their high-end projections by about five cents. That’s giving shares of Lowe’s more than 6% pop on the day. It’s also lending strength to competitor home depot, which will report its earnings tomorrow.” CNBC’s The Call 5/18/2009

LOW itself is up 9% at midday, but the results are also leading the market higher today as competitor Home Depot (HD) and home builders are all trading higher.  We view this as a good quarter for Lowe’s which may foretell a earnings beat from Home Depot, but be careful not to proclaim this a sign of the housing bottom.  Consumers are putting off big ticket purchases and renovations in favor of smaller improvements.  The bottom in the housing market may still be months away, and as we all know Lowe’s and Home Depot do best when there are a lot of housing transactions.  Sellers sprucing up the house and home buyers personalizing are two main drivers of revenue. 

With a record number of foreclosures in April and housing prices still in decline, albeit less than prior months, there are still concerns that make us hesitant to recommend these retailers.  However, a stabilization in the housing market appears closer now than at anytime in the last two years, and for these stocks (LOW, HD) if you wait until the housing market is roaring again you have probably missed your entry point.  The Ockham valuation of LOW is currently Undervalued, in contrast to HD which is Fairly Valued by our methodology.  There are a lot of things that are out of Lowe’s control (i.e. housing market) but the management is doing a very solid job through this difficult period.  By cutting costs, increasing earnings and margins, and gaining market share from their rival, Lowe’s is doing all the right things to be a stronger, leaner company when conditions are more favorable.