Growing Solar Demand Boosts Suntech Power

Mar.29.11 | About: Suntech Power (STP)

Suntech Power (NYSE:STP) has benefited from investors hopping on the ‘solar energy to replace nuclear energy’ bandwagon as global concerns highlight the dangers associated with the production of nuclear energy. Suntech’s stock price jumped in the wake of the Japanese crisis – a trend seen across all companies in the solar industry, including competitors FirstSolar (NASDAQ:FSLR), SunPower (NASDAQ:SPWRA), and Yingli Green Energy Holding Co. (NYSE:YGE).

Suntech Power designs, develops, manufactures, and markets photovoltaic (PV) products and also provides engineering and construction service for building solar power systems. It is the world’s largest manufacturer of crystalline silicon photovoltaic (PV) modules and is China’s largest U.S. listed solar player by market capitalization. We maintain a $10.68 price estimate for Suntech Power, implying roughly 20% upside to the stock’s market price.

Nuclear’s Loss is Solar’s Gain

The crisis at Japan’s Fukushima Daiichi nuclear power plant, after the country was shaken by a massive earthquake and tsunami earlier this month, has raised doubts over the safety of nuclear power. Given these concerns, new regulations governing the construction and operations of nuclear plants could become much more stringent – this would raise costs for the nuclear power industry and likely reduce its popularity as a substitute for fossil fuels. Alternative energy sources like solar and wind could fill the void to meet rising global energy demand.

Japan’s Solar Component Manufacturing Industry Has Also Taken a Hit…

Japan contributes about 10% of the world’s solar components. The industry is currently led by China, with its high government spending and low-cost advantages. With Chinese players being pushed to run operations below capacity due to cut-throat competition, the recent crisis creates an opportunity for them to raise their heads higher in the global market.

Chart created by using Trefis' app

… and Suntech Power is Poised to Capitalize on this Opportunity

Suntech Power is at the top of the industry in terms of production capacity. We currently estimate that Suntech will grow production to about 4.35 gigawatts (GW) of PV modules by the end of our production capacity. If this figure increases to 5 GW, as recent trends lift global demand for solar power, it would imply a 5% upside to our $10.68 price estimate for Suntech Power stock, bringing our estimate close to $11.30.