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Last week solar stock prices fell dramatically on Monday, then for three days they rose by eye-popping amounts and by Friday, they went back to the usual grind of day-by- day price declines. Leading the declines on Friday was Trina Solar (NYSE:TSL), which fell by a stunning 25.5%. A ten percent drop might have been considered normal in the current solar environment - but 25% even in our current surreal environment was a lot.

There were two interesting news items on Friday. First, a Bank of America (NYSE:BAC) analyst, Joe Osha, published a set of surprising stock price targets and second, Greece announced that the $27 billion solar project (Project Helios) should have a framework agreement by the end of the year. This would be a massive 10 GW project. Since the Greek economy could use a bit of help, I imagine that they will fast-track the whole project.

The eleven solars discussed in this article are listed below:

  • Canadian Solar Inc. (NASDAQ:CSIQ)
  • China Sunergy Co., Ltd. (NASDAQ:CSUN)
  • Daqo New Energy Corp. (NYSE:DQ)
  • Hanwha Solarone Co., Ltd. (NASDAQ:HSOL)
  • JA Solar Holdings Co., Ltd. (NASDAQ:JASO)
  • Jinko Solar Holding Company Limited (NYSE:JKS)
  • LDK Solar Co. Inc. (NYSE:LDK)
  • Renesola LTD (NYSE:SOL)
  • Suntech Power Holdings Co., Ltd. (NYSE:STP)
  • Trina Solar Limited (TSL)
  • Yingli Green Energy Holding Co. Ltd. (NYSE:YGE)


The BAC estimates were somewhat surprising and disturbing coming from a mainstream Wall Street company. In the table below I compare the BAC targets to our targets and to the Street targets. With the exception of DQ and JKS, my current targets are less than the Street targets. One should keep in mind that to be totally objective, I have used a six times PE ratio across the board. If any company potentially records an EPS loss for the year, I have halved the current stock price. Our estimates are totally theoretical. So for HSOL investors, it is unlikely that the stock price would fall to the theoretical price of 16 cents. On the other hand, in the zany world of solars, anything can happen. It appears the Street is much more forgiving on target prices.

In the case of the BAC estimates, they seem to almost be pricing for total failure for many of the companies. The most glaring example is TSL. The Street target is $17.05. My target is $10.15. Yet BAC has posted $1. The one positive BAC aberration seems to be SOL (and to a degree, YGE). In the case of SOL, why would the analyst have a higher target price than the Street estimate when all his other targets are about 50 to 90% less than the Street? Thankfully, we were spared his estimates for the remaining five solars.

A Comparison of Our Six-Month Theoretical Stock Price Target to the Street and BAC Targets

Stock

Our 2011 EPS

Current

Our Six Month

Street

BAC

Estimate

Stock Price

Target Price

Target Price

Target Price

CSIQ

0.32

3.39

1.94

6.76

CSUN

-0.93

1.17

0.59

0.90

DQ

2.37

3.89

14.20

9.50

HSOL

0.03

2.04

0.16

3.42

JASO

0.35

1.88

2.08

4.47

1

JKS

5.51

6.30

33.05

13.31

LDK

-0.04

3.40

1.70

5.85

1

SOL

0.33

1.89

2.00

3.08

5

STP

-0.40

2.34

1.17

5.15

1

TSL

1.69

6.02

10.15

17.05

1

YGE

0.83

3.43

4.99

6.82

4


* The Street targets and current stock prices are from Yahoo

In BAC's defense, they initiated SOL and YGE with Buy ratings. As well, they rated First Solar (NASDAQ:FSLR) as a Buy.

Are the BAC Targets of Any Value?

Upon initially looking at the BAC targets, I smiled thinking "This guy just wants some attention." It is possible to argue his stock price targets. If he is strongly bearish in module ASP outlook, then his targets do have merit if we consider 2012. The strong bears could argue that module ASPs will fall to 95 cents or worse (our worst case for 2012 is $1.00). In our recently published book, we examine the best, most likely and worst cases for 2012.

The table below summarizes EPS if we were looking at 95 cents for 2012.

2012 EPS Estimates Assuming that Module ASPs Fall to 95 Cents

Our 2012 EPS (Based on 95 Cent Module ASPs)

BAC Target Price

CSIQ

- 3.99

CSUN

- 3.29

DQ

0.89

HSOL

- 1.51

JASO

- 0.07

1

JKS

1.56

LDK

- 0.59

1

SOL

0.07

5

STP

- 1.66

1

TSL

- 3.06

1

YGE

- 0.75

4

* Note that these numbers do not represent our most likely EPS estimates for 2012.

Under this assumption, the analyst could make a compelling argument for his $1 targets. But if he used these assumptions, how could he at the same time initiate Buys for SOL and YGE?

As mentioned in earlier articles, if we look at 2011 in isolation, the big picture looks pretty depressing. Over the past few weeks we have presented the worst case and the best case for Q4. The worst case is a continuation of our current bear market. The best case offers some hope for the start of a bull market.

On the Buy recommendations, BAC might be right but I would be surprised if stock prices followed through to his extreme targets for the four other companies.

Disclosure: I am long JKS, YGE, DQ.

Source: Are The Bank Of America Solar Stock Price Targets Fair?