SEPA Report Showing End-Market Demand Disconnect Could Sink First Solar, SunPower

 |  Includes: FSLR, SPWR
by: Notable Calls

FBR is out with a negative call on First Solar (NASDAQ:FSLR) and SunPower (NASDAQ:SPWR) after Solar Electric Power Association [SEPA], an industry association bridging the solar and utility industries, announced yesterday the results of its survey of utility companies (titled:"Utility Solar Electricity Market Survey"). Summary: (a) projected PV installations of ~2 GW, on aggregate, over the next three to five years in solar portfolio, versus >3 GW for CSPs across the U.S. utilities; (b) possible paradigm shift, with utilities owning the plants and PV suppliers becoming only turn-key providers (if ITC is given to utilities instead of third parties).

FBR notes that in their "best case" demand scenario analysis, for the excess capacity to be absorbed (thus helping with manufacturers' utilization rate of ~70%), U.S. mix of PV installations would need to increase from the current 4% to 15% by 2012, implying there would need to be > 5 GW of (aggregate) demand from the U.S. alone in that period. Assuming that the U.S. utilities market accounts for a large mix of the overall U.S. market, the results of the survey suggest that aggregate installation of 2 GW most likely won't be enough to absorb the kind of incremental capacity that will be available starting in CY09, unless PV module/system ASPs were to decline by >15% starting in CY09 to make them more competitive with alternatives like CSPs.

Stock Net: With the firm's Underperform-rated stocks, FSLR/SPWR, pursuing large, utility projects in the U.S., they believe results of the SEPA study suggest that there is significant downside risk to current CY09/CY10 consensus estimates since the supply appears to be disconnected from the end-market demand environment, which requires much lower ASPs to make PV more competitive versus CSP.

They believe the relief rally has already come and gone, and they encourage profit taking/shorting.

Reiterates Underperform and $200 target on FSLR (closed at $264 yesterday).

Notablecalls: I suspect this call will drive both FSLR and SPWR down today. We could see a 5%+ downside move in both stocks.