With Help from California, Solar Gets Fired Up

My home state of California has been in the solar industry's spotlight in recent years. Our Governor, Arnold Schwarzenegger, adopted a well-publicized plan to embrace renewable energy in the sunshine state. Based on this plan the State's 20% electricity has to come from renewable sources by 2013.

So far Cali gets 11.8% of its electricity from renewable resource according to the state energy department. So we still have to build additional 8% based on either solar or wind. So far solar seems to be the best approach because of the abundance of sunlight. The PG&E (PCG) deal with SunPower (SPWR) and Optisolar is a good example. For investors, the question is who else will benefit from this. We believe First Solar (FSLR) and SPWR will continue to grow along with it, Evergreen Solar (ESLR) may have problems ramping up additional capacity to supply California's growing demand since the company probably has to supply all its capacity to the two contracts it has already signed.

So the state probably needs to look for new solar resources from overseas, such as Suntech Power (STP), Solarfun Power (SOLF), Trina Solar (TSL), Yingli (YGE) or China Sunergy (CSUN) or JA Solar (JASO), and this will ultimately benefit wafer suppliers LDK Solar (LDK) and ReneSola (SOL). Suntech power is a steady growth story but the company has never announced big contract like Sunpower. Still, its sales are from very diversified markets overseas. This gives investors good visibility of its future. We should thus not be surprised to see STP sign a U.S.-based contract.

One solar company you have to watch closely is Solarfun Power, as the company repeatedly delivers positive surprises to investors. Recently, the company entered the Californian market, becoming the sole PV supplier in the state selected by Altisys Solar. With the state ramping up solar installation capacity, Solarfun is likely to get a certain percentage of the overall market share. According to the Mutual Fund Facts report, Lehman Brothers (LEH) and Morgan Stanley (MS) recently added to their positions in Solarfun; Goldman Sachs (GS) is also a shareholder.

The solar sector may have bottomed. With stated support from both Obama and McCain, solar stocks have been gaining ground since last week. Congress's passage of the solar tax credit in September should also fire up the solar sector.

Disclosure: Long

Comments

[STEVE35:]

Thanks, Arnold for the push. He is a guy with a brain and not just muscle. In 1984 I had $7,000 invested with Solar Energy and lost it all when the bastard Reagan fully cut all the energy full from solar and gave it to OIL.

2008 Aug 18 08:38 AM

[Spinner:]

So you lost some mony in solar energy in 1984... Maybe you should have bout MSFT. Reagan is was one of the greatest leaders in modern history. What good would have your investment in solar be if we were destroyed by the USSR or Iran back in the 80's. I'm sure you believe that 9-11 was an inside govenment job as well. But on your big boy pants and invest like a man.

2008 Aug 18 08:55 AM

[Alphameister:]

On all levels, fundamental, technical and political, the skies are increasingly sunny for solar stocks.

2008 Aug 18 08:56 AM

[Alphameister:]

....and kudos to SPINNER for telling it like it is!

2008 Aug 18 08:58 AM

[Spinner:]

Thank you alphmeister! I may post comments on websites two or three times a year. But when people can’t appreciate the freedoms what we are given, and the safety this great nation provides, it just makes me a little crazy. I appreciate your comment.
PS. There is a time for all investments and now is the time for solar… Instead of going w/one giant, go to the supplier of many giants… try SOL -

2008 Aug 18 09:41 AM

[David White:]

SOL reports earnings tomorrow. It is in the same space as LDK. It should do extremely well. I am looking for a good to great beat on EPS estimates. The outlook should be favorable too. The recent California contract (PG&E) with SPWR should provide more reason to expect great things from SOL.

2008 Aug 18 09:44 AM

[Alphameister:]

SOL is a major holding of mine along with TSL and YGE. Also have stakes in SPWR (through CY) and CSIQ. Have owned SOLF in the past and probably will again. California is leading a trend in energy generation that will increasingly be embraced across this nation (and the world).

2008 Aug 18 10:18 AM

[frflyer:]

Don't forget that a good amount of the solar energy in California will come from solar therml power plants.

Reagan may have been a good leader in some ways, but in my opinion is over-rated. He was as anti environment as George Bush has been.
It was Reagan who appointed James Watt as secretary of interior, and said "if you've seen one Redwood tree, you've seen them all".
Only an idiot is not an environmentalist in this day and age, and that was apparrent in the 70s and 80s as it is today.
And his trickle down economics has only benefitted the top 20% of Americans, mostly the top 2-10%.
Between 1983 and 2004 the top 11% enjoyed 89% of the growth in wealth in America, meaning the lower 80% only got 11%, and the lower 40% had a negative growth in wealth.

And his economic policies started us on this road to runaway federal deficits.
As far as the cold war, it is silly to credit Reagan for singlehandedly winning it. What about all the other administrations since WW2? What about Kennedy?

2008 Aug 18 12:27 PM

[Gaucho:]

Spinner is a good name for you. You must work for the Bush administration.

"Reagan is was one of the greatest leaders in modern history." Yea a debt of 3 trillion in 1980 dollars & the jerk cut taxes for the wealthy and destroyed alternative energy and fuel efficiency standards that lead us into this mess. Remember how he ran away in Lebanon after one attacked where he had disarmed our soldiers. His only claim to fame is that Russian empire happened to collapsed on his watch.
I bet you joined the young Republicans and are opposed to health care for children. I bet you supported the Bush administration and his 5 trillion in debt and his lies about the WMDs and are really stupid enough to believe that it was not for the largest reserve of cheap oil left in the world. Why don’t you send your family over there to get ground up. Ohh, I forgot you are above that! You are a chicken hawk Republican fighting is for the lower classes, the reserves and college deferments are for the Republicans (see Bush and Chaney). You just belittle people who did serve as cowards or their service was somehow flawed.
BTW the Chaney had maps of Iraq oil fields brought into the “energy meeting” in April of 2001. Wow wasn’t it fortuitous that 9/11 happened 5 months later so that we could go after that oil.

2008 Aug 18 01:38 PM

[Spinner:]

This is why I don’t post. You can’t talk to irrational people.
Some how they have the most time to argue while the rest of us work towards bettering ourselves with action rather than complaining. And yes my family is fighting for our freedoms and yes I have been to funerals unfortunately for our fallen and have actually heard some of the most inspirational words from the mothers and fathers of the soldiers who have died.
And an excerpt from your liberal paper The New York Times : The top 1% of income earners pay about 32% of all income taxes. The top 5% pays 51.4%. The top 10% of high income earners, pay 63.5% The top 20% of high income earners, pay 80%
I do not believe in everything Bush sets forth, but I do believe with out security, there is not much else.
I would like to continue, but I have to get back to work.

2008 Aug 18 04:30 PM

[jmb:]

Well said Spinner: The Bush administrarion has invested more in alternate energies than all previous administrations combined.

2008 Aug 18 05:17 PM

[alpha24seven:]

Nacho or gaucho whatever... Sell your brand of crazy somewhere else. I heard your public library is having a secret Bilderberg meeting tonight at 7 PM sharp. You'd better be there on time before the the rest of the "enlightened" drink all the free coffee and horde the free donuts...

lol... seriously...

And BTW. The CA solar plan ($3.2bn) takes money every month directly from the disadvantaged and poor to pay for overpriced PV systems for rich homeowners. Fact. And that part isn't lol.

2008 Aug 18 05:18 PM

[supershort:]

These plans are all contingent on a 30% tax credit and also building an adequate delivery grid. If you wish to rest your hard earned dollars on a pipe dream, by all means go ahead.

Solar cannot survive without subsidies and is a very inefficient way of making electricity. Wind, as a renewable is much better suited as unlike solar, can provide energy throughout the day. Solar don't work at night period. You need a back up supply, plain and simple. The tax credits for this should be reduced. As Alpha24/7 states, it takes money out of the poor and disadvantaged anyway. Energy will never be free. we won't be able to get off fossil fuels until our technology increases exponentially, which for solar hasn't happened.

2008 Aug 18 05:50 PM

[supershort:]

These plans are all contingent on a 30% tax credit and also building an adequate delivery grid. If you wish to rest your hard earned dollars on a pipe dream, by all means go ahead.

Solar cannot survive without subsidies and is a very inefficient way of making electricity. Wind, as a renewable is much better suited as unlike solar, can provide energy throughout the day. Solar don't work at night period. You need a back up supply, plain and simple. The tax credits for this should be reduced. As Alpha24/7 states, it takes money out of the poor and disadvantaged anyway. Energy will never be free. we won't be able to get off fossil fuels until our technology increases exponentially, which for solar hasn't happened.

2008 Aug 18 05:50 PM

[Teedeebee:]

I'm sorry that Spinner won't be able to read this because he/she is working so hard. My comments, however are meant for you.
I'm not a linguistics expert by any means, however I must take umbrage with regard to your complete grammatical deconstruction of the english language.
I'm not surprised that Ron Reagan appeals to you. Superficial posturing usually does appeal to those with a mono-faceted approach to life. Cowboys and Indians, good guys and bad guys, ad nauseum. Just as the intrinsic irreplaceable value of a redwood forest was lost on James Watt and "the gipper", a nuanced evaluation of the realities of life do not seem to be one of your gifts. You have been hijacked and hoodwinked by people that don't care. To quote one of the lines from "Oh Brother Where Art Thou?"; "It seems your friends have abandoned you".

2008 Aug 18 07:21 PM

[svosavvy:]

And oil isn't subsidized? Why do you think gas is cheaper here than in europe or even canada. Honestly all sides piss me off on this. You don't have to be an environmentalist to believe in the Alt. energy story. Thats why I like Pickens. I'm sure he's interested in the next way to make a buck, but, that's the way it should be. It's business, save your tree huggin' for your time off. Solar is only ever going to work on a municipal scale, period. So these people who have panels on their house are fine, but, thats not the way forward. Expensive homegrown energy will continue to look expensive, until foreigners who call the shots screw with us again, opec is already clamoring that there is 1 mil barrels/day too much available on the market get ready for that spigot to close a little.

2008 Aug 18 09:06 PM

[svosavvy:]

Hey spinner, you probably know a few truckers, ask them how they feel about fuel prices. BTW that's a low blow banging the drum about fallen soldiers to sympathize for your political beliefs, don't cheapen their sacrifice, there is a lot of loss around all of us. I'm rural, work my ass off, and not rich probably like yourself. Last time I checked America has been the center of the world for innovation for awhile, people need to get their collective heads out of their butt and realize this is not a dem/rep political thing. If it wasn't for innovation we would still be riding horses, thats the funny thing about innovation it does a lot falling before it can walk. I agree wind is great where its windy like in my backyard. They're building wind turbines and the pieces being trucked in are followed by a heavy state trooper escort because of the local nuts who don't want them. They must think they're Jesse James vs the pinkertons all over again. IMO energy indepence is an excellent way to fight terrorism, physical and economical.

2008 Aug 18 09:40 PM

[David White:]

Today SOL reported a beat and a guide higher. They reported EPS of $.38 ($.32 had been forecast). They also raised guidance for the year. Revenue moved to $640-$670M from $570-$590M. They also raised the amount of MW they will produce. They are now estimating 340-350MWs for 2008. This is a good result, but not the great result of some others such as LDK. Still this company seems to be well run. The analysts like it (Avg. rating of 1.8). The gross margins were a respectable 24.7%. This stock currently trades at a premium PE. However, this is an illusion. It is a recent IPO. After this last result, I think one might conservatively estimate full year EPS for SOL at approximately $1.40. At the current price of about $17 this morning, the PE for 2008 would be approx. 12. The FPE (2009 earnings) is approximately 8. This is a low multiple for a quickly growing stock that is well thought of. This stock likely has room to move up if the analysts don't ding it for some reason. We will have to wait to see after the company's conference call.

2008 Aug 19 08:35 AM

[David White:]

STP is supposed to release results tomorrow. This is a more followed company. It also should have good results. If the market starts to go back up again. Both of these companies prices should rise. SOLF is due to report next week. SOLF should also beat estimates. I am hoping we don't get a huge overall market fall in the meantime. If the market cooperates, SOL seems likely to head upward.

2008 Aug 19 08:43 AM

[David White:]

SOL almost more than tripled earnings from $.12 in the year ago quarter to $.38 this quarter. I don't have the data for Q3 of last year. Thus I am making a ballpark estimate of $.15 for Q3 of 2007. If you add this to the results since then: Q4 = .34, Q1 2008 = .28, and this result Q2 2008 = .38, the total EPS for the TTM period is .15 + .34 + .28 + .38 = $1.15. The current PE for SOL based on this calculation is $17/$1.15 = 14.78. This is a relatively low PE for a quickly growing stock. It has room to move up. If you estimated a conservative PE to be 20, the stock price could move fairly quickly to $23. In a drastically falling market, this will naturally not happen soon. We will have to see where the market goes. This is still a good result.

2008 Aug 19 08:55 AM

[David White:]

I note the EPS for all of 2007 for SOL were $.86. Therefore a ballpark estimate for Q3 of $.15 is more likely a low figure than a high figure.

2008 Aug 19 09:17 AM

[David White:]

The current average 1 yr. target price estimate on SOL is $28.50. The revenue guidance was for and increase of approx. 13% this year. In theory this seems likely to lead to an approx. 13% increase in 1 yr. target price. This would mean a 1 yr. target price of approx. $32. One might argue that this should translate into a relatively immediate $3.50 pop in the stock price. We'll have to see what the analysts say in the next day or two.

2008 Aug 19 09:44 AM

[supershort:]

David, you are a big chearleader for SOL and STP. Sol is currently trading down, as their confrence call didn't bode too well for future margins. Inflation will hit the solar market hard also.

2008 Aug 19 10:50 AM

[Batard:]

Don't forget that Jimmy Carter had put solar panels on the White House 38 years ago and when Ronald Reagan came into office, he had them ripped off. Carter was creating an energy policy 38 years ago that would have us off foreign oil years and years ago.
So Reagan was ultimately responsible for a 38 year set back in investment and research in alternative energies. In my opinion, he set the stage for the destruction of America. Sure a few people made a lot of money in the interim, but in the process Reagan destroyed our "people first" economy.

2008 Aug 19 11:10 AM

[David White:]

supershort: I am really more a fan of SOL than STP. I just think STP earnings should be good this quarter. Also STP has been a more "followed" stock.

I am also worried about future margins. However, CSIQ and LDK have already started to make UMG solar along with standard hi-purity polysilicone solar. I expect most of the other hi-purity polysilicone solar makers will move to some combination of hi-purity and UMG manufacturing. This should help margins considerably in the future. The low-purity polysilicone needed for UMG is only about one tenth the cost of the hi-purity polysilicone.

Further after the conference call Credit Suisse left their Outperform rating unchanged; and they raised their one year target price on SOL from $25 to $29. I have seen no lowering of ratings or target prices yet. I wouldn't be too quick to short this stock. Usually there is a good reason a stock can garner an average 1.8 analyst rating when similar stocks are less well rated. To me it just looks like a well run company with good potential. We will have to see how the solar market shakes out. If there is a fairly quick shift to UMG solar, the possible decreases in price may cause a faster ramp up in demand. The CIGS solar companies should also be a bigger factor within another year or two. I would think FSLR would be a much better short than SOL. I could always be wrong.

2008 Aug 19 11:39 PM

[David White:]

supershort: Your comment about SOL going down due to the conference call may be a miscalculation on your part. I am not sure it had anything to do with the conference call. The margins seem more or less in line with other manufacturer's. To me it seems more likely the stock was just down today in sympathy with a recently downtrending market. It has been my experience that high growth stocks tend to move in the direction of the market trends, regardless of their fundamentals. This speaks particularly well for LDK, which had great results. LDK also should have a better margins soon with its polysilicone plants due to start producing significant amounts of polysilicone in 2009.

2008 Aug 19 11:50 PM

[Learning Curve:]

To see Reagan in action, proudly pulling off solar panels, see the film, "Who Killed the Electric Car". At the time of Reagan's re-election bid, a Republican acquaintance actually said to me that "we" must destroy alternative energy and subsidize oil in order to stay friends with the Saudis. He was serious! For a good history of how this foolishness brought us down, also see the film "The End of Suburbia".

2008 Aug 20 11:22 AM

[AlexS:]

I like California. Nice beaches. They try out these nutty ideas before the rest of the country so we get to have a test case before we're all subjected to it. Remember the zero pollution vehicle stuff? Now it's renewable energy. The only problem is that they always set the goals so far away so that people forget them if they aren't achieved. This should read 20% renewables by Sept. 18, 2008, otherwise the utilities have to shut down. Come on. No guts, no glory.

2008 Aug 20 02:19 PM

[David White:]

PJ analyst Jesse Pichel reiterated his buy rating on SOL, and he raised his one year target price to $35. He also explained why he thinks SOL if much better off than other companies such as TSL in terms of margins this year. Specifically SOL already has contracts for its polysilicone stock at reasonable prices. SOL margins should not deteriorate this year. I don't think anyone knows exactly how the long term future will play out in solar. However, it is clear that solar energy is a growing field, and it will be with us for some time. SOL looks to be a well run company. It was listed in a CAPS article today as one of 7 energy stocks set to take off (i.e. one of the best buys in energy). Some of the other stocks listed were PBR, RIG, and CHK. That's pretty heady company for a recent Chinese IPO.

2008 Aug 20 08:00 PM

[in balance:]

the only thing rational about your thinking you sited from the NY Times.

major corporations, their CEOs and fellow execs like ENRON and the failing Big Three are among the unethical and immoral people that you seem to think are overtaxed. do you have a rational explanation about why they are so overpaid?

what WMD's? in-and-out of Iraq? sission accomplished? the economy is fundamentally sound?

all very rational from your point-of-view, i am sure.


On Aug 18 04:30 PM Spinner wrote:

> This is why I don’t post. You can’t talk to irrational people.

>
> Some how they have the most time to argue while the rest of us work
> towards bettering ourselves with action rather than complaining.
> And yes my family is fighting for our freedoms and yes I have been
> to funerals unfortunately for our fallen and have actually heard
> some of the most inspirational words from the mothers and fathers
> of the soldiers who have died.
> And an excerpt from your liberal paper The New York Times : The top
> 1% of income earners pay about 32% of all income taxes. The top 5%
> pays 51.4%. The top 10% of high income earners, pay 63.5% The top
> 20% of high income earners, pay 80%
> I do not believe in everything Bush sets forth, but I do believe
> with out security, there is not much else.
> I would like to continue, but I have to get back to work.

2008 Dec 06 02:17 PM

[in balance:]

while your positive view of the future for solar is laudable, if you're serious about your compliment to SPINNER, then you must be able to ignore the reality of the economic and political morass that Reaganism brought this nation to.

are you, Spinner and like "thinkers" among those who are so wealthy that you can avoid or absorb harm from the global crises that now face the rest of us?

seems more likely that you're not and, instead, are in the ranks of those whose notions of "freedom" and "democracy" keep you vulnerable to mistaking political caricatures for "real American heroes".

if you or members of your family are in fact risking themselves to protect us all, may you return safely and in good health to a society that provides for its military veterans much better than it has since the end of WW II.


On Aug 18 08:58 AM alphameister wrote:

> ....and kudos to SPINNER for telling it like it is!

2008 Dec 06 06:40 PM