3 Reasons To Be Bullish on Solar Stocks - Cowen 28 comments
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Cowen & Co is out with a positive call on solar stocks, saying most of the U.S. solar names look undervalued relative to growth and earnings, in their view, reflecting four areas of investor concern: uncertainty about the next phase of subsidies in Spain, Germany and the U.S.; and the tension between silicon supply/cost and module ASP/demand. Each of these is likely to be clarified in the next two to six months, underpinning a group rally. Firm reiterates Outperform on ENER, ESLR, FSLR, HOKU, SPWR, STP, and TSL.
1) Cowen believes a bill to extend tax credits for renewables may be introduced in the Senate on Earth Day, April 22nd. Details must still be worked out. However, they see improved chance of passage.
2) Spain, Then Germany. Zapatero's Socialist Party retained control in the recent election, so support for renewable energy should continue. With new feed-in-tariff rates due to take effect in October, they believe legislation should be settled by July. And, the final bill is likely to be more favorable than the last draft, with a higher FIT (33-35c vs. 31c) and increased cap (perhaps 2GW vs. 1.2GW). While the new German FITs are likely to be in line with expectations (down about 9% in 2009, then 7% and 8% in 2010/11), this major market should also be more certain by Q3.
3) Investors are skittish about potential supply disruptions, and there is a wide range of views regarding module ASPs in H2:08 and 2009. By the Q2 earnings cycle, the firm expects: more output from new poly plants, silicon prices to be past their peak, modules to be essentially sold out for H2 at firm prices, and much more confidence regarding 2009 ASPs.
Notablecalls: As you can remember, SunTech (NYSE:STP) has been Cowen's favorite Solar play lately. They have good exposure (50%+) to Europe, especially Spain, and the valuation is just so low here. I have been positive on STP around current levels and continue to be so.
I think Cowen's call is very buyable here. Would not be surprised to see STP around $35 in a week. Be early.
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This article has 28 comments:
TSL PE 19 Forward PE 7 PEG 0.3
STP PE 33 20 PEG 0.53
LDK PE 17 12 0.6
Trina is a China company. I am sure that they could fudge the numbers if they wanted to, just by pegging their currency to some other arbitrary thing they pick out of the sky. Why would you want to own a company that is owned by the government, a communist one at that?
STP P/E Ratio is greater than 94% of other companies in the Electric Utilities industry. STP's Gross Margin is less than 78% of other companies in the Electric Utilities industry, which means it has less cash to spend on business operations as compared to its peers. Another China company. Enough said.
LDK's P/E Ratio is comparable to other companies in the Semiconductors industry. LDK's Gross Margin is less than 61% of other companies in the Semiconductors industry, which means it has less cash to spend on business operations as compared to its peers. Another China company? It also has a heavy short interest 24%.
So why would anyone think these are cheap?
Just think of me as Daedalus and these "anallists" as Icarus, trying to get you to fly too close to the sun.
Only comparing the P/E and margin to the rest of the industry ignores the growth rate, which is just a little higher than the average.
Maybe solar makes sense some day - right now it is not even close.
The goverment giveth and the government taketh away!
Any change in policy and these stocks will crater.
Right now solar is a victim of its own success. Once the industry actually has the refined silicon to supply it, not just the semiconductor industry, then grid parity's getting close. The industry talk is generally 12-18 months for the silicon, and three to five years for grid parity pricing. There's your horizon.
Also, the panels are more efficient and produce more electrictity when it is cold out, so it is when there is less sunlight and less time to net-net the power to the grid. In the summer and in the warmer climates like FL and the south, the peak electrical usage is during the hottest part of the day, again at the least efficient time of the panels. So you still need backup power. Solar will play a larger role but it will never be large enough for these multiples.
Nuclear power is economical, safe, and is the cheapest to run long term. That is a big part of the equation that everyone os leaving out. Once they build more and they will, because we are being stragled here, the government will pull the subsidies on these and go for more self sustaining means os power.
Like I have said before, SPWR is at over 600x earnings now. No company stays at that level for long. These companies will play a part, but I will wait until they get down to earth in their multiples, say like Exxonmobile multiples.
Disclaimer: I am supershort on the solar companies, so I have done my research.
I agree that global warming is real. We have to limit our use of fossil fuels, but it is inevitable that GW will continue as all nations start to expand their economies. Solar power is just a small piece of the puzzle. The P/E ratios are way out of line. It is people like you who just scream "BUY THESE STOCKS" without looking at the fundamentals that I have issue with. As far as future graowth, most of these companies have lowered their forcast earnings for the near future. So where is the need to go out and buy long?
I tried to short another 1000 shares of SPWR and they wouldn't let me because they say there aren't any shares to borrow. Gebby, can I borrow and short your shares please, pretty please, with sugar on top.
These multiples will come down as the stock prices come down. That is the only way. The groth rate is factored into these ratios and they are not possible in the near future, nor the next 2 years. Durable goods numbers this morning came in worse than expected. We are nowhere near a bottom in this recession we are just heading into. Evenone is hoping that there will be a "V" turnaround bottom but that never happens, look at all the rest of the downturns, there are all "U" shaped. So this volatility will have to end before you go long. This stock will never see 140 again. I know, been burned before by many "profitable" companies that had mickey mouse magical kingdom multiples. If you own these stocks, sell then. There will be a time and place to enter a position. It isn't here or in the next year and a half.
These stocks do rely on a great deal of subsidies but it is highly likely that these subsidies will continue. Belief in global warming is there and governments want to combat this aggressively. The next U.S. president, regardless of whom it is, will push for further environmentally sensitive energy policy, particularly if it is Clinton or Obama. Also, the U.S. states are being aggressive as well. Just look at California for a prime example.
Additionally, the growth rates of these companies is phenomenal. That explains the TTM P/Es and forward P/Es. Nonetheless, you cannot read too much into these numbers as there are many, many low p/e stocks out there that are getting hammered. The selling in the solar sector was overdone and we are probably just getting back to sustainable levels. We will very likely be another 20% higher by summer.
Obviously, I am biased as I am long STP (in my view the best value in the sector).
STP trades greater than 94% of it's peers. The growth isn't that good to warrant the present price. Also it's margins aren't the greatest and with the supply of silicone being scarce, as they say, the margins will shrink. Careful with that type of risk. Just look at Ethanol stocks.
I will keep my shorts as I fear if I cover, I won't be able to get back in. SPWR will be back to where it was last year, in the 40's.
You have no concept of anything about fundamentals or tech rallies. Tech rallies once born tend to have this euphoria which isn't justified by the multiples long term. Even if some of these companies are profitable, their earnings would have to quadruple to have a P/E ratio comprable to other stocks in the universe. Tehre would be good reason to buy a stock with good growth at say 25-50 times earnings, but never at 700 to 800. The fund managers that track "emerging growth" stocks will have to unload these stocks if they can't keep up the pace as they won't meet the fund criteria. If they are finisged their growth then the "value" guys pick them up. Or the dividend guys. I don't see that happening in the near term.. Take SPWR, one of the last ones out there with an absurd P/E: They missed their earnings last quarter and stated that there are "difficulties ahead." They will report on April 17th. I cannot forsee them increasing guidance, given that the job claims came in at 407,000. Retailers will be looking to close stores not invest in building out expensive improvements on leased property. Looking for SPWR to lose 50% by that day.
Forget about a recession. We have been in one for at least two quarters. Hope we don't go into a depression. At the very leastthe economy will get worse than what it is now in the next year to a year and a half.
Do you always drive while looking through the rear view mirror? Many of these names (tsl for example) are trading at durt cheap FORWARD valuations. I agree that spwr and fslr are trading at lofty levels, but the solar space is just getting warmed ;o) up and your puts will retire worthless imho. Do some dd about the space and potential for amazing earning potential...... Good luck to you!
Also, didn't CSCO, INTC, MSFT, etc. also trade at silly high multiples for many years while they grew like mad?
As far as investing 10k in CSCO or anyone that "made it" in the 90's....there are hundreds more that crashed and burned. Besides, the early days of MSFT, the insiders weren't selling, they were holding or buying. SPWR, they are selling like mad.
I am not telling half truths or lies. I only tell it like it is.