Evergreen Solar (ESLR) is now a buy based on value, in my opinion. ESLR is on track to be profitable by the end of the year. It now seems that ESLR will not need to raise cash. In a regulatory filing on Tuesday, ESLR said it will unload its stake in Sovello AG in a share-purchase agreement reached with an affiliate of Ventizz Capital, a private equity firm based in Dusseldorf, Germany. The sale would end an expensive 5 years for ESLR exporting its solar-cell manufacturing technologies abroad. In the fourth quarter ended December 31, ESLR booked $70 million in losses and impairment charges stemming from its Sovello investment.
Analyst notes:
On March 10, 2010, Theodore O'Neill an analyst at Wunderlich Securities, started coverage of ESLR with a hold rating, asserting that the shares fairly reflect the company’s plan to shift manufacturing to China.
O'Neill notes ESLR is “in the process of dismantling part of the plant and shipping it to China where it expects to produce lower-cost solar modules.”
“Management is ramping an outsource strategy that should significantly lower costs; however, timing is critical to achieve profitability,” he writes. “With the capital markets essentially closed and cash demand rising, it has to get profitable quickly. It must lower its manufacturing cost faster than end prices are falling.”
O’Neill added that, for the moment, the company appears on track to reach cash-flow break-even by the end of this year.
On March 25, 2010, Morgan Stanley initiated coverage on shares of ESLR with an Equal Weight rating.
The global solar market will expand to $77 billion by 2015, growing from its current $39 billion 2010 estimate. ESLR should see rapid growth once it has completed its move to China this year.
ESLR has a book value of $1.93. The price to sales ratio is 0.80. The revenue per share is $1.45. Many other solar stocks trade well above book value and more than 1.5 x sales
I now believe ESLR is worth buying given the sale of the Sovello asset. The current price at $1.10 offers low risk and a decent upside reward ratio. ESLR is oversold and should bounce back to the 50 day moving average of $1.25 and trend higher from there.
I expect ESLR share price to gain 50% to 100% over the next 6 to 12 months.
Disclosure: Author is starting new position in ESLR
