2 U.S Solar Stocks To Buy On U.S. Anti-Dumping Policies

Includes: FSLR, SPWR
by: Bidness Etc

The United States has enforced billions of dollars worth of duties on Chinese solar imports to safeguard the interests of domestic solar producers. These anti-dumping duties were imposed as Chinese Solar producers were found to dump their solar products in the U.S below cost. Anti-subsidy tariff has also been imposed on Chinese solar exporters. This has resulted in serious tensions between the United States and China with regards to their trade relationship. Due to Chinese companies' cost efficiencies, they have managed to deliver panels and solar cells at 249% and 18% below the United States' fair market value, respectively. But the U.S. has further raised duties, from 14.7% to 15.9%, in order to counter the subsidies provided by the Chinese government. If the government further increases its subsidy for this sector, solar panels could be the major contributors to electricity production in the coming years.

The United States' policy makers have imposed heavy duties on Chinese solar products to provide an opportunity to local manufacturers, so that they may expand their market shares. The massive oversupply of Chinese solar panels had exerted a downward pressure on solar panel prices, and squeezed the profitability of U.S. solar manufacturers. In our opinion, the U.S. anti-dumping duties will prove to be lucrative for U.S. solar manufacturers, including First Solar (NASDAQ:FSLR) and SunPower Corporation (NASDAQ:SPWR).

First Solar:

As the graph below depicts, FSLR has shown a significant upside of 44% in the last three months, after the duties imposed on Chinese solar imports. The company has a significant potential to show a further upside based upon its cheap valuations, ability to secure a mega project of 1,000MW from NextEra (NYSE:NEE), mission to achieve grid parity, and bring cost efficiencies in its operations.

It is trading at an EV/EBITDA of 3x and an EV/ Revenue of 0.56x, at a significant discount when compared to the EV/Revenue of 1x, 0.73x, and 0.58x of its competitors Yingli Green Energy Holding Co. Ltd. (NYSE:YGE), Suntech Power Holdings Co. Ltd. (NYSE:STP), Trina Solar Limited (NYSE:TSL), respectively. We have estimated our 2013 target price as $95 (by using historical average of last four years of EV/EBITDA), with an upside of 350%. We believe that the company's decision to move into emerging markets in India and Australia will bring substantial amount of growth. Moreover, the company's shift in focus towards large-scale power projects and a change in the top management signify its potential to capture our estimated target price.

Following are the details of the target price of $95.

Average. EV/EBITDA(Last four years)


Estimated EBITDA of 2013 ($ millions)




Less: (Debt) ($ millions)


Add: Cash ($ millions)


Add: Marketable securities ($ millions)


Equity($ millions)


No. of shares (millions)


Target Price of 2013


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SunPower is another important beneficiary of the anti-dumping policy. The stock has remained flat over the course of the last three months. On the other hand, its competitors faced a significant downside, between 20 percent and 50 percent, as reflected in the chart below. It is trading at an EV/Revenue of 0.4x, at a discount to its competitors YGE, TSL and STP.

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(Click to enlarge)

The company is generating around 69% of its revenues from the North American region, and the recent duties on Chinese imports will further strengthen its position in this market. Margins in the U.S. are much higher than Europe, showing its strong future profitability. In the first half of 2012, the modules grew by 120% in the United States, and the company's current development projects will further accelerate its growth. SunPower is capable enough to tap this potential growth through its technology leadership, strong balance sheet position, and cost reduction. Moreover, the company has injected a 42% stake in an Australian energy company known as Diamond Energy. Furthermore, the company is attractive to investors due to its low debt-to-equity of 55%, as compared to Suntech Power (281%), Trina Solar (102%) and Yingli Green Energy (211%).

After the United States anti-dumping policies on Chinese solar imports, both First Solar and SunPower are now competing with each other to grab the U.S market share. First Solar, the world's largest modules manufacturer, has an advantage over SunPower, based on its low cost per watt due to its thin film technology of Cadmium Telluride. On the other hand, SunPower is using crystalline silicon whose raw material prices are relatively higher because of high bargaining power of suppliers.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: The article has been written by Qineqt's Energy Analyst. Qineqt is not receiving compensation for it (other than from Seeking Alpha). Qineqt has no business relationship with any company whose stock is mentioned in this article.