Silicon Surplus to Depreciate Value of Evergreen Solar Technology

RBC Capital notes that despite several announcements yesterday, including a new silicon contract and Evergreen-only plant expansion (outside of the EverQ venture), they must remain cautious on the long-term outlook for Evergreen Solar (ESLR).

Firm believes the fundamental advantage of ESLR's technology, the ability to use less silicon to make a solar cell (albeit a less efficient one than industry avg) is of severely depreciating value given the vast amount of new silicon supply (a commodity) coming to market in 2008+. RBC believes silicon prices will rapidly decline in 2009+ and therefore be a much smaller lever on costs going forward.

Earnings Leverage: In order to secure the 6-year silicon deal with new silicon entrant DC Chemical, ESLR granted DCC $130M worth of stock, diluting the company 21%. Share count will approach 100M shares by the end of this year. Management is guiding investors to look to 2009 or 2010 for profits.

Bottom Line: They believe all the news investors were anticipating is now in the stock, with few catalysts that will drive upside. Firm believes the YTD appreciation in shares is primarily a result of short covering, spill-over from overall solar enthusiasm, and speculation about the deals announced yesterday, but they believe the financial and technical outlook for the company bode poorly long-term. Maintains Underperform.

Notablecalls: Good points by RBC's Stuart Bush.

ESLR 1-yr chart