Evergreen Solar Needs to Resolve Financial Issues

Evergreen Solar Inc. (ESLR) isn’t the best of breed when it comes to the solar sector, but it does have a handful of things going for it including two major recent orders of solar panels, and a contractual backlog that now stands in excess of $1 billion. Yet, the concerns that Merrill Lynch raises in a ratings downgrade to “sell” on Thursday morning are real, and won’t be shrugged off any time soon.

The analyst note highlighted the potential for German subsidy cuts, but a closer read shows that it also does a great deal of emphasizing the company’s near-term financing needs, and a solution - a possible course of action of equity dilution which would be a major negative for the common stock. In tone, it echoes Citi’s note from May 9 that has since been overlooked. At the time, Barron's reported that the company was short on both time and money, quoting analyst Tim Arcuri as saying the company has “heavy capital needs” and estimates that it will require $2.2 billion in funding through 2012.

A quick look at recent filings and what management had to say during the latest conference call reaffirms Evergreen’s need for cash. In addressing imminent funding needs, it looks like the company will have to raise at least about $200 to $250 million for the construction of the company’s Devens-2-facility. And although the company has said publicly that it is leaning towards the debt market, the investing public hasn’t put much faith in the company’s words and seems to doubt that it can avoid the capital market.

Look for Evergreen to continue to trade lower in the near term, and remain under pressure until its financing issues are resolved.

Comments

[mjt95570]

Devens I goes into commercial production late this month or early next, giving ESLR a very substantial new revenue stream. Their joint venture will have an IPO sometime in the next year, giving them cash. They use less than half the polysilicon of other cell manufacturers. The market should be reflecting all of this, and it isn't. Yet.

[Love to short]

You are right in saying that we need more clarity on ESLR's financial needs. If the company were to do an equity offering, that would obvisouly have a negative impact on the stock. Based on the funding the company needs, an equity offering would result in roughly 20% dilution (give or take) to current shareholders. However, if they were to raise debt as they previsouly hinted towards, the positive impact on the stock would be huge. This would alleviate any concerns of possible dilution, and investors would once again focus on the huge contracts the company just secured. In my opinion, this could result in 60% upside from current levels of $10, making for a favorable risk/reward of 3 to 1.

[evergreensolarinstaller]

I suggest any one who invests take the tour of the factory, Clean and very well run! then see other slice and dice operations, and how dirty they run. add factors such as less waste and add the energy saved by their process and you will see why they will be a world leader!