Not All Solar Stocks Are Created Equal

While solar stocks often trade in lock-step, the companies in the group have distinct differences. To get some sense of that, consider Wednesday’s analysis of the group by Merriman Curhan Ford analyst Craig Irwin, who launched coverage of the sector. Irwin launched coverage of First Solar (FSLR) with a Buy rating, Evergreen Solar (ESLR) and SunPower (SPWRA) with Neutral ratings and Suntech (STP) with a Sell rating.

• First Solar: “The company’s unique position as the industry cost leader leaves room for management to remain opportunistic in a volatile solar demand environment,” he writes. Irwin says the stock should be a “core holding,” and contends the shares are worth $190-$210. He expects profits of $9.39 a share this year, and $10.48 next year. His ‘09 view is way above the Street consensus of $7.02. He contends the company “could shift its model to larger financed projects with lower selling prices, but lower frictional costs and lower working capital requirements.”
• Evergreen Solar: Irwin notes that the company’s string ribbon technology results in lower costs than rivals, but notes that “execution is choppy,” and that cash usage is high and the balance sheet is weak. He notes that ESLR finished Q3 with $309.5 million in cash, and that the company is forecasting $250 million in cash usage by mid-2009 to complete its new facility in Devens, Mass.
• SunPower: The analyst notes that the company’s solar cells can generate as much as 50% more power per unit areas versus its competitors, giving it an attractive cost structure and “premium marketing positioning. But he adds that the company “will not be immune to major market disruption.” He says the credit crisis “creates a foggy outlook.” He also notes that there is an arbitrage opportunity between the Class A and Class B shares; he says the super-voting Class B shares with 8x voting rights ought to trade at a premium; but the Class A shares have been trading at a 20% premium to the B shares.
• Suntech: Irwin’s view is that the company’s “differentiated manufacturing approach” requires lower level of capital to expand capacity than many of its peers. But he says that the company’s scale is a negative in a challenging solar environment. Irwin also writes that he is “cautious about the company’s debt load,” with a $500 million convertible note put coming in February 2010. He puts fair value on the stock at $3.50 to $4.50, or well under half the current price.

In Wednesday’s trading:

• First Solar was up 87 cents, or 0.6%, to $138.63.
• Evergreen Solar was down 5 cents, or 1.9%, to $2.53.
• SunPower was up 46 cents, or 1.5%, to $31.31.
• Suntech was down 9 cents, or 1%, at $9.22.

Comments

[Crude Oil Trader]

First Solar is the only name to consider for long term investing. You can day trade these smaller companies but if you are a long term investor [long term is 1 month these days] First Solar [FSLR] is the only company that can exist without government money.

2009 Jan 22 08:20 AM

[Fred W]

The article fails to mention the support that Suntech is/will receive from the Chinese government. Additionally, the pricing of solar modules will continue to decline and BOS and installation labor wil remain 1/5th of the cost of a U.S. based project...this will open up the largest market in the world to PV (China)--the solar thermal installation numbers in China are astounding so the market is there when the price is "right".
The solar industry in China is perceived as a job engine--the ruling party will not abandon its efforts to ensure economic stability for without it, the party's days in power would be numbered--Suntech will benefit and ultimately First Solar will see much greater competition on price.

2009 Jan 22 10:23 AM

[jbde]

Eric,
Does SPWRA buy wafers from LDK? I believe their utility scale projects also require that they buy modules from other module manufacturers.

Yes, their bifacial wafers are the industry leader [overall conversion efficiency per unit of gross module front face area due to backside eteching of conductors and ability to convert reflected irradiation on the backside]

Re LDK: If they are able to produce polySi at costs of $26/kg versus contract prices over $200/kg - doesn't one of two things or both happen?
LDK's margins skyrocket, LDK can offer wafers at lowers prices.

Thus module makers buying cheaper wafers from LDK have lower costs, thus lower module prices should follow.

There appears to be more downside in module material costs this way than FSLR can achieve. Thus wafers may become the preferred PV base and thinfilm will lose its current cost advantage !?!?!?!?

2009 Jan 22 10:24 AM

[tginomorebush]

savitz continues to enjoy bashing solar ..... what A....J E R K O F F!

2009 Jan 22 10:58 AM

[Fred W]

The cost of labor, or automation that substitutes for it, becomes the driver of pricing. The choice is easy: hire and fire cheap Chinese labor to absorb the fits and starts of the solar industry or gamble by making large equipment purchases to automate the process. Sinking a lot of capital into machines that may soon have to be idled due to market conditions--I submit that Chinese firms are actually in an enviable position--government support and a willing and able pool of cheap labor.


On Jan 22 10:24 AM jbde wrote:

> Eric,
> Does SPWRA buy wafers from LDK? I believe their utility scale projects
> also require that they buy modules from other module manufacturers.
>
>
> Yes, their bifacial wafers are the industry leader [overall conversion
> efficiency per unit of gross module front face area due to backside
> eteching of conductors and ability to convert reflected irradiation
> on the backside]
>
> Re LDK: If they are able to produce polySi at costs of $26/kg versus
> contract prices over $200/kg - doesn't one of two things or both
> happen?
> LDK's margins skyrocket, LDK can offer wafers at lowers prices.

>
>
> Thus module makers buying cheaper wafers from LDK have lower costs,
> thus lower module prices should follow.
>
> There appears to be more downside in module material costs this way
> than FSLR can achieve. Thus wafers may become the preferred PV base
> and thinfilm will lose its current cost advantage !?!?!?!?

2009 Jan 22 01:26 PM

[athena]

ENER looks promising, anyone have an opinion?

2009 Jan 22 03:26 PM

[gebby]

lazard went to a buy rating on STP and raised rating on LDK 2 days ago. Lazard has ben early in making accurate calls.

2009 Jan 24 11:14 AM

[Stockguy456]

ESLR just needs to make the product - they already have the orders!

2009 Jan 26 11:17 AM

[longtermstocks]

I like ESLR too

2009 Jan 26 09:38 PM

[BillyC]

ESLR should rebound due to it's order backlog of 3 Billion Dollars, ample supplies of silicon due to there joint venture with Q-cells and REC (Sovello), and that they will not need additional financing to expand until 2010 since they have approximately $300 million in cash and marketable securities plus a $375 million convertible note carrying a 4% annual yield.

You can also hope for Government assistance since the Gov. of Mass. is in there corner, and a rise in oil prices down the road.

2009 Jan 27 05:14 PM