As stated in part 1 of this article we believe the solar industry as a whole is in a secular bear market. We see the industry facing two important headwinds that will last for quite some time, thereby undermining any hoped for near-term recovery; those headwinds being reduced government tax incentives and reduced availability of customer financing due to the European sovereign debt crisis and its resulting impact on the European banking sector. The reduction in government subsidies is and will cause a reduction in demand. Several companies are still adding capacity, which we believe will result in overcapacity, a sea of red ink, a continuation of reduced guidance and an increase in inventory write downs, all of which should eventually lead to industry consolidation and the bankruptcies of individual companies. We do not envision revising our outlook on solar until the consolidation and bankruptcy phase is largely complete, which (together with continued technological advances to make solar more cost competitive) should set the stage for a powerful bull market in solar stocks. Here are the final five solar companies in our review:
ReneSola Ltd. (SOL)
ReneSola is a Chinese company that manufactures and sells solar wafers and solar products. ReneSola has a market cap of $163 million and the stock has an average daily trading volume of 2.6 million shares. This NYSE listed company reported Q3 earnings November 23, reporting a $0.09 loss per share and significantly missing the consensus on revenue ($189 million vs. $216 million consensus). The company issued downside guidance for Q4, forecasting revenue of $140 – $150 million vs. the $207 million consensus. Additionally, the company temporarily lowered capacity utilization for Q4 to reduce losses from the potential inventory write down. We think it is unlikely that ReneSola will be a survivor as the company is at a cost disadvantage against its competitors in the wafer market and wafer prices are being set at a level below RenSola’s production cost. The stock is off 85.8 % from its 52-week high of $13.25.
SunPower Corporation (SPWR)
Sunpower designs, manufactures and delivers high efficiency, high reliability solar panels and systems. SunPower has a market cap of $728 million and the stock has an average daily trading volume of 712,000 shares. The company reported Q3 earnings November 3. Revenue was $705 million up from the prior quarter of $592 million as well as up from last year of $553 million. The company would have reported a profit but for a large $350 million charge for goodwill and intangible asset impairment. Guidance for Q4 is $675-725 million in revenue and a loss of earnings of ($0.15) to $0.10 per share. SunPower has the backing of Total (the global energy giant), which includes a tender offer for 60% of SunPower’s stock and up to $1 billion in a credit support agreement. The Total investment insures that SunPower will be a survivor but likely will limit upside potential in the stock during the next recovery phase. The stock is off 68.8 % from its 52-week high of $23.36.
Suntech Power Holdings Co. Ltd (STP)
Suntech is a Chinese company that designs, develops, manufactures and markets photovoltaic products. Suntech has a market cap of $406 million and the stock has an average daily trading volume of 4.4 million shares. Suntech, the largest manufacturer of solar panels in the world, announced Q3 earnings November 22, beating on revenue ($809 million vs. $775 million consensus) but missing on earnings (loss of ($0.64) per share vs. consensus of ($0.20). For the year the company guided down to a revenue range of $3 billion to $3.1 billion. Suntech has a high short interest of 16% of the float. Suntech, as the largest solar panel manufacturer in the world, has the size and market share to not only survive but to help consolidate the industry. The stock is off 79.2% from its 52-week high of $10.83.
Trina Solar Limited (TSL)
Trina is a Chinese company that designs, develops, manufactures and sells photovoltaic modules. Trina has a market cap of $486 million and the stock trades an average daily volume of 4.0 million shares. Trina reported Q3 results November 21, reporting a loss of $0.45 per share (25 cents worse than the consensus) but exceeded consensus on revenue. During the quarter the company successfully negotiated a downward revision in a significant portion of its long-term silicon supply agreements. Trina has the benefit of a balance sheet that is less levered than many of its peers. Post earnings Auriga downgraded Trina to “Sell.” We see Trina as another likely survivor. The stock is off 77.7 % from its 52-week high of $31.08.
Yingli Green Energy Holding Co. Ltd (YGE)
Yingli is another Chinese company that designs, develops, manufactures, markets and installs photovoltaic products. Yingli has a market cap of $609 million and the stock trades an average daily volume of 4.4 million shares. Yingli reported Q3 results November 23, providing investors with one of the better reports compared with its peers. Earnings were a positive $0.14 per share and revenue rose 30% year over year to $668 million (just shy if consensus). The company reduced its Q4 PV module shipment guidance to a range of 1,580 – 1,630 MW from 1,700 – 1,750 MW. We see Yingli as another of the survivors in the solar field. The stock is off 71.6 % from its 52-week high of $13.59.