Solar Stocks: Citi Says Still Too Early to Buy

For the solar industry, there is good news and bad news about the demand picture.

In 2009, Citigroup’s Timothy Arcuri observes in a research note today, global demand is likely to sink to 5 GW, from 5.3 GW in 2008. But driven by a growing pipeline of utility-scale projects and aided by government stimulus programs, he thinks the total will jump up to 7.6 GW in 2010 and 9.6 GW in 2011. But Arcuri cautions that at the moment there is about 4 GW of product in the supply chain, or about 10-12 months of current demand. He says production cuts are still not keeping up with inventory build, and contends that long-term polysilicon and wafer supply agreements are preventing a more efficient response from suppliers.

Arcuri also thinks that spot poly prices are little misleading; the price has stabilized in the $100-$110/kg range over the past 6-8 weeks he says. Some observers, he contends, have concluded that the worst is over. But Arcuri contends “it gets worse” from here, with suppliers willing to take move inventory risk rather than allowing spot prices to collapse.

“Putting it all together,” he says, “the issue is that inventory is bloated, demand is flat at best and cell/module providers have been loath to cut production thus far.” He says production numbers for this year are about 2x where he sees installations, and that “production must be cut much more aggressively.” He says it is clear that the inventory problem will get worse before it gets better - and that you can’t make a broadly bullish call on the stocks until inventories peak.

Arcuri notes that he has below-consensus estimates on most solar stocks, including Energy Conversion Devices (ENER), Evergreen Solar (ESLR), First Solar (FSLR) and SunPower (SPWRA).

Along the same lines, Hapoalim Securities analyst Gordon Johnson wrote a note today on his recent visit to the Photon solar conference in Germany. His conclusion is that “deterioration in sentiment among German solar PV professionals suggest the intermediate-term outlook is weakening.” Like Arcuri, he think the increasing will shrink this year. But he notes that on an aggregated basis the top 10 PV module companies are projecting shipment growth this year of 79%. He thinks all of them are being too optimistic. Johnson adds that project financing conditions remain bleak for utility and commercial scale projects, although he adds that funding appears to be improving for residential markets.

Johnson maintains his Underperform rating on the sector, with Sell ratings on SunPower, Suntech (STP) and First Solar; he has a Hold rating on MEMC Electronic Materials.

Original post

Comments

[oldmaninPA:]

I like CSIQ...I'm willing to wait out the storm.

Mar 06 04:33 PM

[samanaali:]

Once city learns how to manage their own books, I will listen to anything they have to say :)

Mar 06 05:31 PM

[phdinsuntan...:]

dont trust advise of penny stock firms

Mar 06 06:09 PM

[User 283977:]

What does Johnson say about Citi?

Mar 06 07:05 PM

[decoflair:]

I can no longer accept any stock/financial advice from any financial institution that cannot manage their own house.
WHAT A JOKE! CITI giving out financial advice.
These financial firms have destroyed their credibility by financially destroying their own companies.
I am to take their advice?

Mar 07 05:11 AM

[tginomorebush:]

nor should you listen to barrons "savage" whos main purpose is to bring down every company for short interest. "savage" never prints anything positive on anything........

Mar 07 08:15 AM

[gebby:]

citibank is against solar power. i saw one of their environmental presentations. it did not include one solar company, but it did include exxonmobil and conedison. all old industry investment banking fee payers. the effort is to bury the equity in solar companies. solar is the future yet stp at 5 is a sell. it was 88 14 months ago.

Mar 07 08:24 AM

[fireball:]

i have traded a few solar stocks butbecause they seem to need subsidies to exist they are to vulnerable to political whim. are any of them cost-effective on their own? can any of them compete with oil, ng, nuclear or coal? i saw a presentation on nanosolar that looked like it might be interesting but they didn't really give specifics on costs. they are private anyway. solar is a great concept. has any company figured out how to make it competitive? without stipends?

Mar 07 09:05 AM

[stockdoc123:]

What does CITI know?

Mar 07 10:28 AM

[stockpro:]

Suntech(STP) will be a screaming BUY in the not too distant future. The only thing stopping a vertical leap is a herrendous stock market and our president has not yet focused on alternatives. HE WILL SOON!

Mar 07 03:01 PM

[dan-d:]

Big oil still calls the shots even though their house of greed and control is starting to feels the power of big daddy sun. The formula is thus for a while:
Big OIL = Big Money = Control of Analyst. The problem for big oil is that a few moral leaders now understand Energy Independence = Freedom + a Cleaner Safer Planet.

Mar 07 04:55 PM

[Michael Boyter:]

Eric,
The Power Shift Has Begun

I like your writing however there is one factor that you may be forgetting to take into account that I think you should consider before you put the brakes on the American Solar Industry. America has always been the home of the technological revolutionaries. Our country will rise to the top as the leader in innovation once again. I am aware of 2 such "Disruptive Solar Energy breakthroughs that are "Ready for Primetime."
They are as revolutionary as the Toyota Prius was to the Automobile industry. I have 148,000 + miles on my Prius and I have averaged over 50 mpg. My last vehicle a good and dependable American Truck achieves 22 mpg on a good day. I have thus saved the usage of 3818 gallons of fuel by using my Prius or at $2 per gallon or @ $7636 dollars. Considering i have been driving it a prices in the $4 plus range also I have saved considerably more. So where is this all
going?

There is a new solar technology that is a much bigger breakthrough than the Prius was in efficiency to the automobile industry.

It's EOS-XPX technology. By utilizing XPX any Photovoltaic Solar Panel can Extract 15 to 20% more power on sunny conditions, 40 to 60% more on cloudy conditions and 100% or more on Rainy and low light conditions. I know it sounds too good to be true, but I have witnessed this myself. It's so advanced it will allow for Grid Parity as soon as it's widely adapted.. The Solar Panel manufacturers who elect to utilize this technology, will have systems that extract a much larger amount of usable power and be able to eliminate their traditional capacitor based inverters. The Utility Scale Solar Energy Providers who utilize EOS-XPX technology will be producing billions of dollars more electricity at the same cost! just by adding this most disruptive technology to their power plants. This will not only give America the leadership role in the clean energy marketplace, It will also firmly establish a new era of energy efficiency, and help our American grown energy industry to create hundreds of thousands of good new green energy related jobs. Reducing the amount of Coal and Fossil Fuels burned will instantly start so slow the amount of Co2 we are dumping into our atmosphere and help to reverse global warming. When is the time to invest in a solar future, Now would be a good time. Those who do with the leaders, will prosper and lead us into "The New Age of Clean, Inexpensive Renewable Energy, for Century's to come. How do you jump start the economy? I just told you.

Mar 07 05:49 PM

[smlcap:]

Yea.....Citi. Now there's credibility. I will take Citi's advise......on a cold day in hell.

Mar 07 10:37 PM

[smlcap:]

Tell Citigroup’s Timothy Arcuri that I'm doing very well day trading FSLR.
I love it! And, when the time comes to hold it, I'll already be there.

Mar 07 10:48 PM

[boisterousbob:]

ROFL

Eric's job is to analyze this sector and produce an opinion for us that is likely quite informed.

It took a much more senior and highly compensated individual to destroy citi.

You should enjoy Eric's analysis. I doubt Citi will be able to pay for it much longer...



On Mar 06 05:31 PM samanaali wrote:

> Once city learns how to manage their own books, I will listen to
> anything they have to say :)

Mar 08 04:31 AM

[Road Runner:]

I am an investor in SPWRA, STP, FSLR, and ENER, so I would like to think his analysis is wrong. However, I have to agree with him. It just makes sense. The solar industry finally got really going, ramping up production, just as the banking system, oil prices, and the world economy collapsed. All 3 together created a hurricane force head wind for solar.

I'm keeping my solar stocks because sometime after mid 2010, solar will finally get back on track and take off. At that time, many small solar companies will be gone so the big, established players will have a good market.

I'm not saying that ENER is a big, established players. It is my speculative play. I like their new, aggressive management so I think they will survive with their unique product.

Mar 10 10:48 PM

[aquaculture:]

Interesting. What city essentially predicted here is nothing less than a solar pv horror scenario.

But here in Europe at the 7th Photon Silicon Conference Rogol still predicts 15 GW module production, 12.5 GW installations of wich 9 GW have minimal exposure to project financing. Project financing is thawing in Europe. This includes 4 GW installed on German rooftops in 2009. French demand accelerating rapidly. Spain static.
Now photon has always been right in their predictions and 6N spot prices seem to support Photon's view.

And here is the flaw in Arcuri's logic: If inventory builds up like that ASP's would fall way below Meditteranean grid parity, wich in turn would set off a demand explosion.

Salient detail that City does global asset management, leaks an 'internal memo' about their own 'profitability' and a solar stock like STP jumps 25 % a day later, after the last infidels sold their solar stocks to...

Mar 11 08:51 AM