He issued Buy ratings on Evergreen Solar (ESLR), SunPower (SPWR) and Suntech Power (STP); he rates Energy Conversion Devices (ENER) a Hold. “We are decidedly bullish on the solar equipment group in light of favorable global trends, sold out capacity and planned additions through 2010 that should set the stage for the sector to break down historical macro stock trading patterns that have seen a very tight corrleation to forward energy prices,” he wrote in an industry report this morning. “We think recent declines in the stock prices have opened up a buying opportunity in select names.”
Here are excerpts from his four company-specific notes:
Evergreen Solar: We see new order flow and earnings upside as the new EverQ facilities [a joint venture with German solar company Q-Cells] come on line through 2010. We also seek these factors driving earnings upside as well, as technological advances result in using less and cheaper silicon drive margins. Price target: $13. SunPower: SunPower has taken an innovative technique used in manufacturing its solar cells that has resulted in industry-leading cell efficiencies above 20%…The company is a rapidly emerging cell and module manufacturer that has executed well in ramping manufacturing capacity,with 200 [megawatts] planned by the end of 2007 and 400 [megawatts] by 2009/2010, up from 80 MW last quarter. Price target: $55. (By the way, remember that SunPower is majority owned by Cypress Semiconductor (CY), which has been examining options for improving shareholder value from its SunPower investment, perhaps by spinning off the rest of the company to Cypress holders.)
Suntech: Suntech Power is a leading Chinese manufacturer of silicon crystal solar cells…with sales likely topping $600 million in 2006 and profitable operations and positive cash flow today, we see Suntech as the low-cost supplier with roughly 80%-85% of cost of sales in materials (mainly silicon). Given low-cost operations and a secure silicon supply looking forward with MEMC (WFR) for 10 years, we see Suntech as the best positioned of our coverage to outperform on margins. Price target: $52.
Energy Conversion Devices: [The company] is the leading thin film solar company in the marketplace for solar equipment today with more than 25% market share…We have initiated coverage…with a [Hold] rating and a $43 price target reflecting what we believe is a full valuation given growth prospects through 2010. While we expect the shares will remain volatile with the broader solar group, we prefer to see tangible evidence of thin film cost benefits before becoming more aggressive on the shares.
In yesterday's trading:
Evergreen Solar is up 24 cents at $9.38. SunPower is up 55 cents at $32.25 Suntech is up 18 cents at $26.48. Energy Conversion Devices is up 20 cents at $39.75. Cypress Semiconductor is down 27 cents at $19.01. MEMC is down $1.01 at $36.66
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ESLR vs. ENER vs. STP vs. SPWR