As Solar Sector Flies, Pay Attention to Values

Investors easily chase high fliers when analysts upgrade stocks. A good example is Yingli green energy(YGE) today traded as high as 20% when Lazard upgraded. However, the company is trading at PE=18 of 2009, which is lofty. The same is happening with Suntech (STP), the stock is trading at PE=36 of 2009. Solar stocks were beaten down heavily last year and earlier this year. The bounce was vicious. I am going put up a table to compare different solar companies out there and hopefully you can tell which company gives best value for investors.

The Best value so far I see is Renesola (SOL). For some reason, the stock is not moving at all, particularly because no analysts have started to touch the stock yet. The company posted solid earning last week, the most important thing is the company makes money, unlike its peers Solarfun (SOLF) and Canadian Solar (CSIQ), who are losing money.

Renesola reported a net margin of 16%, which is among the highest in Chinese solar. The company also acquired JC solar, a local solar PV maker who has sales worldwide(EU, Africa, Asia, and of course in China). The combined company projects 1.3GW PV production in 3 years. The beauty is that Renesola becomes a vertical integrated PV maker, just like Trina solar (TSL). LDK is also attractive here as it is trading at a PE=10 of 2009. But Wall Street had headaches with the LDK's management in the past, and again, wall street is unimpressed by the earning release last week.

Company	Mkt Cap ($M)	Current Price	YTD Chg	Rev 09E	Rev 10E	EPS 09E	EPS 10E	P/E 09E	P/E 10E	Net Margin
FSLR	15,118	181.99	30%	1,923	2,565	7.07	8.5	25	21	29%
WFR	4,032	18.04	26%	1,107	1,565	0.43	1.33	42	14	32%
SPWRA	2,320	27.1	-27%	1,371	2,014	1.13	2.08	24	13	3%
STP	2,173	14.1	19%	1,869	2,252	0.39	0.83	36	17	13%
YGE	1,429	11.3	85%	1,097	1,304	0.61	1	18	11	13%
LDK	949	8.39	-36%	1,378	1,750	0.87	1.76	10	5	15%
SOLR	917	6.41	122%	554	667	0.71	0.8	9	8	17%
ENER	714	15.61	-38%	336	442	0.66	1.08	24	14	-23%
JASO	670	3.99	-9%	727	946	0.17	0.41	23	10	14%
TSL	648	21.96	136%	752	934	1.16	2.1	19	10	10%
CSIQ	391	10.98	70%	502	688	-0.05	0.59	NA	19	-6%
SOLF	319	6.6	32%	575	686	-0.12	0.23	NA	29	7%
SOL	256	3.77	-14%	586	699	0.41	0.63	9	6	16%
CSUN	170	3.81	-4%	264	362	-0.24	0.3	NA	13	3%

Auther is long SOL, FSLR

Comments

[gebby:]

stock prices reflect future earnings. not past earnings.

May 27 08:50 AM

[Sol Invictus:]

kelvin - you should check back the Q109 report. Renesola is not making profit. The company has negative gross margin in Q109 and therefore negative net result.

May 27 09:31 AM

[petyaczar:]

Solar energy has a bright future, The U.S. government tax credits will serve all providers well as the market gains momentum.
The biggest players will be the biggest winners.
STP is both a solar play AND a China play AND one of the largest most profitable suppliers on a global basis.

IMO

May 27 12:36 PM

[user396040:]

I still have a lot of trouble figuring out which technology will dominate - thin film photovoltaic, regular photovoltaic, the sterling engine, or thermal steam - until we really get visibility on that issue, it is possible to bet on the wrong horse. So an investor probably has to be diversified to be protected.

May 27 01:03 PM

[Wisdom vs. ...:]

we will never get visibility on that issue because PV changes every day, and it is likely a new tech- will come along-- all solar is a bet! if you do not want to bet then buy GE, they are heavily invested in alternative energy. keep in mind, concentrating solar ('thermal steam') is simply not working so far ROI-wise, and thin film is so inefficient that it will have a difficult time lowering costs enough to keep pace with cSi ('regular PV'). my bet is on LDK and STP

May 27 03:22 PM

[Road Runner:]

Sure, solar technology is evolving fast, and the ultimate technology winner is not clear, but that may not matter in picking the winning companies. The big, profitable solar companies like First Solar, SunPower, and SunTech are starting to have a competitive advantage built on things besides solar technology. They have installation technology which is key since installation is half the cost of a home solar system. They have large distribution networks. And, they have the financing strength (but not in the short term of this crisis) to buy smaller solar companies that have breakthrough basic solar technology. If buying these companies is not a good option, then the big companies can partner with the small companies. It’s symbiotic – the big company improves its product line and the small company gets a strong distribution and installation network.

May 27 04:54 PM

[Alphameister:]

Agree with you that SOL offers the best reward-risk ratio in the group if estimates for this year and next are even close to being realistic (though first-quarter results were far from impressive). Would not touch costly FSLR because its economic advantage over polysilicon is being eroded on virtually a daily basis. It does, however, seem to have the capacity to hedge its bets by acquiring one or more less costly competitors in the PV industry.

May 27 07:02 PM

[frflyer:]

I think the question of which type of solar will do best is a false dichotomy. They should all do well, IMO.
They are apples and oranges. Solar thermal with heat storage is centralized dispatchable power which the NREL expected to be rather expensive for the first handful of plants, but to rapidly fall in costs as experience and economy of scale come into play.
Thin film and normal silicon should serve different markets as well. The more efficient silicon panels should do well where available space is an issue, like rooftops. Thin film should do better where space is less an issue.
For investors, there are no solar thermal stocks so far.

May 27 11:08 PM

[Windsun33:]

You would think so, but in "hot" sectors, like solar, emotion, herd mentality, and "hope" overcome common sense. That is why you see so many solar stocks selling at 15-30+ x earnings. If they even have any earnings...

On May 27 08:50 AM gebby wrote:

> stock prices reflect future earnings. not past earnings.

May 28 12:02 AM

[dicki31785:]

I wouldn't discount the risk and the capital, needed, involved becoming a vertical player....surely it is a nice idea and everybody in the space seems to be heading that way....Since you can save a "couple" basis points of margin at every step of the supply chain....but you gotta be good at what you are doing....You can't jsut become a vertically integrated player and thats the end of the story....it involves a bit more than that....

my favorites from China are STP, SOLF, TSL ( I am long TSL)...SOLF i liked because it showed the most resiliency in the downturn (rev % change Q3 08 to Q1 09)STP because of Pluto...once the get their costs under better control they should take off(not spending 80 million on office HQ and high executive compensation would be a good idea etc., etc.)...and Trina my absolute favorite...I just like everything about them....we will see if I am right in a couple hours...the run up leaves lots of room for disappointment...but I am fairly optimistic that they managed to steer through Q1 quiet well...guesstimate of $140-160 mil in rev and a small loss....

With Kind Regards From Germany

CW

May 28 05:54 AM

[Fred Laurent:]

Not sure how you are getting your PE of 10 for LDK. Although I m long LDK, looking back to Q109 report, I have now come to consider that their stock price is in the money.

(disclosure: long LDK, long STP)

May 28 01:00 PM

[Fred Laurent:]

Been doing a deeper analysis, but still I am not sure of this EP of 10 (thought I get close to this figure too now). Delving into the call transcript I still can not find any clear data on the cost of their poly (except that they target a 30$/Kg when their lines would be up and running) and a slight variation of this cost change dramaticaly their EBIT. Would be interested in exchanging with you your forecast to see if do the same kind of modelling.

May 28 04:39 PM

[ldker:]

Another wary article from a guy who has missed advised several times. Please readers, take a look at my comments from his last ill-timed article. Also, look where the solars were at the time he called the "dead cat bounce over" in relation to where they are now:

seekingalpha.com/artic...

May 29 10:58 AM

[PeteK:]

for value, check out SOPW, an American co base in Calif.
Good management, agressive, and good potential.
Cheap share price now. When President Obama starts talking about Solar etc next, all American co should benefit.
The point is, make sure "BUY AMERICAN."
Not foreign Solar !!!

May 30 06:30 PM

[Ricard:]

"Investors easily chase high fliers when analysts upgrade stocks. A good example is Yingli green energy(YGE) today traded as high as 20% when Lazard upgraded. However, the company is trading at PE=18 of 2009, which is lofty. "

This analyst is missing the forest for the trees. Just by using his own numbers, we get a PEG for YGE of 0.38. That's a steal, if they hit their earnings targets for 2009/2010.

Jun 02 04:09 AM