Goldman Turns Cautious on Solar Sector

Solar stocks traded sharply lower Tuesday morning after Goldman Sachs analyst Michael Molnar declared he has become cautious on the solar group, “as less generous subsidies combined with a wave of supply pose a real risk.”

Molnar asserts in a research note that the risk of oversupply in the solar market “will soon become a reality as considerably less generous demand subsidies take hold just as a wave of supply and tight financing hit the market.” He thinks that “liberal subsidies of the past in markets like Germany and Spain are unlikely to be replicated in the future given fears of their ultimate cost in a bad world economy.”

As supply increases, he contends, prices will have to “adjust strongly downward to generate demand.” He thinks that trend will lead to below-consensus estimates for module manufacturers and compressed valuations for stocks in the sector.

Molnar Tuesday cut his rating on First Solar (FSLR) to a Conviction Sell from Buy, slashing his price target to $103 from $365. For SunPower (SPWR) he goes to Sell from Buy, with a target of $43, down from $100. He also cuts his target on Evergreen Solar (ESLR) to $4.50 from $10.50.

He sharply reduced estimates for the solar stocks. For FSLR, he now sees $3.62 next year, and $5.92 in 2010, down from $3,75 and $7.13. For SPWRA, he sees $1.22 and $2.47, down from $1.27 and $2.63. For Energy Conversion Devices (ENER), he goes to $1.64 and $2.92, down from $1.72 and $2.87.

Meanwhile, Wedbush Morgan’s Al Kaschalk Tuesday morning cut his own target prices on the solar stocks, asserting that “with negative macro economic conditions and concerns over availability of capital in the near term,” multiples are likely to remain compressed for now. He cut his target on FSLR to $225 from $350. For SPWRA, he goes to $100 from $125.

Piper Jaffray’s Jesse Pichel likewise cut his target prices and estimates on solar stocks today as well, asserting that checks with renewable energy project developers suggest “the cost of capital on renewable projects will likely increase despite potential Fed easing.” He says that “the problem is access to credit and not demand.” Pichel cut his target price on First Solar to $250, from $350, cutting his 2009 EPS estimate to $7.63 from $8.47.

Tuesday morning:

• First Solar was down $12.56, or 7.9%, to $147.15.
• Evergreen Solar was down 20 cents, or 4.3%, to $4.38.
• Energy Conversion Devices (ENER) was down $2.51, or 4.7%, to $51.52.
• SunPower was down $8.74, or 13.2%, to $57.60.
• JA Solar (JASO) was down 55 cents, or 6.2%, to $8.34.
• Solarfun (SOLF) was down 45 cents, or 5%, to $8.58.
• Canadian Solar (CSIQ) was down $1.13, or 7.5%, to $13.85.
• LDK Solar (LDK) was down 71 cents, or 2.9%, to $23.99.

Comments

[longtermstocks:]

Investment bankers? Ya, they have a lot of credibility.

2008 Oct 07 05:53 PM

[GKM:]

How can they be bearish on solar stocks when crude is going to $250 by the end of the year? That's what they said isn't it.

I think we'll see a lot more games from these guys in the future. They've got to make book and it won't happen with ibanking.

2008 Oct 07 07:12 PM

[Wayfarer:]

Goldman manipulates the market regularly. They talk about weakening demand but the government just passed a bill that will pay 30% of every solar job for the next 8 years. They didn't mention this? How could they miss this? The U.S. has become the 800lb gorilla in world solar demand. Goldman should never be trusted.

2008 Oct 07 09:30 PM

[John Petersen:]

Expansion of the tax credits is great for solar because it eliminates the old $6,667 per taxpayer cap and makes utilities eligible. It is even better for the storage and power conditioning equipment manufacturers who were effectively frozen out of the old credit regime by low limits. If you want a glimpse of the next big alternative energy sector, review my SA series on energy storage.

2008 Oct 08 01:20 AM

[maclogo:]

AVAV is one one the few that can survive in the alternative energy field. It has government contracts in addition to its wind power efforts on our nation's skyscrapers. (Back-Up! It helps).

2008 Oct 08 02:06 AM

[ericinNE:]

GS is rapidly getting to be in the same camp as Cramer, as far as validity of opinion is concerned. Whatever they say, doing the opposite is your best bet.

2008 Oct 08 02:59 AM

[Sol Invictus:]

I can not believe Goldman used this argument to cut its target prices ! THe "oversupply theory" has been discussed for months and the recent policies (US ITC + Spanish cap increase to 500 MW + German new tariffs) are strong arguments against this theory.

The fact is that they were embarassed with the huge differences between their target prices and the current ridiculous spot valuations.

These cowards used the fisrt arguments that sounded pessimistic enough to be credible in this bearish market in order to adjust their target prices closer to spot levels... What an intellectual dishonesty !!

2008 Oct 08 03:27 AM

[Piggybank:]

/quote
Molnar Tuesday cut his rating on First Solar (FSLR) to a Conviction Sell from Buy, slashing his price target to $103 from $365.
quote/

Seriously, if Mister Molnar is just going to pull prices on the fly from his ass, then he can aswell make it a nice round number. 103$? Why not just a 100$? I'd like to see their calculations scheets that first turn ip with 365$ and a few month's later with 103$.

Anyway, if you listened to Molnar when FSLR was at 315$ not that long ago, then you'd be seriously screwed over with this new target. Maybe GS should start to predict the fluctuations months into the future, like FSLR will first go to 365$ and then to 103$ and then to 25.689$ and 24 cents and then back to 5$.

2008 Oct 08 07:05 AM

[john s. gordon:]

goldman sucks- always manipulates the market.
> jack

2008 Oct 08 08:15 AM

[george9:]

goldman makes money shorting things; not too bad an idea if you have guts conviction and buffets moneyl

2008 Oct 08 08:30 AM

[John Cordes:]

Booked business, take or pay contracts, deposits extending out for years, applicable to ESLR, LDK, SOL etc. yet GS is down on Solar. American subsidies now in place, Octobers earnings a few days on many Chinese solars, I'm going to take a stab here and say, GS is accumulating while encouraging the public to dump. I believe I'll ride this out.

2008 Oct 08 08:33 AM

[thrinald:]

Thanks Goldman for saving us from the last 15% decline of about 70% in total... They are more of a buy on the downgrade than a sell. Although growth stocks just aren't going to be the outperformers in a bear market, that's pretty well understood.

2008 Oct 08 08:33 AM

[chinooking:]

i think every person that work's for, or has worked at goldman should be thrown in jail,,paulson and cramer at the top of the list

2008 Oct 08 08:50 AM

[NOWHEREMAN:]

All I've read signifies that none of you remember the Bursting bubbles of the Internet, LNG, Housing, Ethanol or understand the Current Financial crisis.

Hedge Fund redemptions are still ongoing. Mutual Fund redemptions are still ongoing. Mutual Funds especially rely on the ANALysis of those entities being booed for direction on what to buy/sell so they can have scapegoats after making the wrong decisions. Now that Solar is going the way of ethanol, all I see is sniveling. Take your cue from the activity in CLNE.

The Solar stocks are getting smashed, get over it.

The reality is that they have too many players, they spent their IPO or Contract money before it was even earned, elaborate expansion, etc. Where are they going to get financing from. WHY aren't the INSIDERS in these firms buying their own shares IF they are so cheap.

Trina Solar has a PE of 7, How much further down do the rest of these highly speculative investments have to go down before they have PEs that are similar.

I'll will not even bother to look closely at FSLR until it approaches $60.

I would hazard a guess that all of you hold these shares but none of you are willing to buy more. And if none of you are willing to buy more, Why are you still holding them?

Protect your holdings, buy insurance.

2008 Oct 08 09:21 AM

[gebby:]

at some point the fundamentals take over. fslr , ener, spwr, esp fslr are all over priced. only fslr is not a buy, buy all other solars. sol,ldk,csiq, stp. technically they look sick but i heard the debate, the u.s.will invest in solar big time. this is another negative article by savitz....never positive. can he research some investment themes for a change?

2008 Oct 08 09:32 AM

[H.J. Huneycutt:]

The problem with comparing solar with the Internet is that most of the solar companies actually have fairly significant earnings. Solar stocks are essentially commodity stocks. In periods of undersupply, they can thrive --- in oversupplied markets, margin pressure will undermine profits.

A few of the overpriced solar companies are going to struggle more in the future, but I'm a bit skeptical as to the bearish outlook presented by Goldman Sachs.

2008 Oct 08 09:34 AM

[H.J. Huneycutt:]

Also, there should be some equivalent to Godwin's law for invoking comparisons to the Internet bubble. Call it Huneycutt's Law if you'd like!

I've heard about a half-dozen comparisons to the Internet bubble in the last few weeks when there were very few commonalities. Ag stocks are not like Internet stocks. Solar stocks are not like Internet stocks. Precious metal stocks are not like Internet stocks. Commodities in general are a completely different beast than fly-by-night Internet companies.

2008 Oct 08 09:57 AM

[NOWHEREMAN:]

Ah, But Solar stocks are like the ethanol and LNG plays before ethanol.

The Biggest problem with the Solars is the groupings as reflected by ETFs and other Green Baskets and/or indexes.

The Basket includes both junk and Great, when sold, its sold as 100 shares of each within that basket. Thats primarily the reason that I learned the hard way to wait until the Junk gets really reamed before buying those that have great earnings like TSL.

2008 Oct 08 10:20 AM

[nakedjaybird:]

Where was Molnar several months ago with his insight when everything used for his BASIS was already known??? And it's Goldman, yet!!!!

2008 Oct 08 11:53 AM

[nakedjaybird:]

Well, after reading some of the other comments, I see that I didn't have to make any comment.

2008 Oct 08 11:58 AM

[tessant:]

goldman made some huge money in the last 24 hours.

2008 Oct 08 01:08 PM

[supershort:]

Get over it. I have been saying this for months. You guys didn't see the writing on the wall. So you can only blame yourselves. I mean really, were you guys expecting an upgrade? Get real.

2008 Oct 08 04:42 PM

[User 276341:]

Unfortunately, Goldman Sachs now has the reputation of that rich spoiled kid who, after he/she breaks the rules and gets caught, cries and asks mom and dad to come to school and bail him/her out...whimpering little maggots feeding on their connections to the Fed, Treasury, and the American Government.
Of course, GS is a powerful investment firm whose words carry weight, and I am sure their number crunchers have crunched their little numbers until they can crunch no more, so people jumped like lemmings at their SELL SELL SELL order...but look where their analysis of their own company most recently got them. It's all a bunch of crap!
The solar market will not do what any of these analysts are predicting; it seems as though they crunch these numbers to come up with arbitrary figures and then tell everyone to sell when they think they made enough money or want to buy the stock at a cheaper price. These guys should be arrested for price manipulation. I bet GS will buy up the stock on the cheap once it reaches their pre-set market price...thieves.
Personally, if I owned GS, I would keep my solar and sell my Goldman Sachs; at least this way you could sleep at night knowing your money was supporting an industry that was offering up a solution to some of the problems facing the world in relation to energy consumption instead of being part of the crowd of thieves and crooks all lining up in Washington to get a handout for their piss-poor analysis of their own company. If Michael Molner's advice was worth anything, he would have gone to his bosses a few months back and said, "hey guys, I think we're in trouble."
If I had more money, I would be buying more solar, wind, energy storage, energy efficiency, water purification, geothermal, hydrogen, electric motors, cellulosic ethanol, and transmission infrastructure.
Someone should monitor how long it takes Mr. Molnar to change his SELL to BUY and how much money he makes off of giving such piss-poor advice. I guess he figured if he was going broke, why shouldn't everyone else...misery loves company.
CRUNCH CRUNCH CRUNCH

2008 Oct 09 10:16 AM

[David White:]

There was this downgrade. However, there has also been a lot of non-specific hedge fund and mutual fund selling. Virtually all of the hot areas have been hit hard. The most obvious reason is that all of the mutual funds and hedge funds owned these stocks. If they have to sell to give suddenly wary customers back their money, they are selling these formerly hot stocks. Now these stocks are beaten down. Some of them likely deserve to be. FSLR's multiples had been outrageous. They are probably still too high. However, other stocks such as LDK had reasonable multiples. These stocks are now bargains. Eventually the market will sort this out. LDK for instance just raised its revenue guidance for Q3 by about 10%. They have reach production capacity goals earlier than expected also. When a projected 80% grower has a PE of 8, an FPE of 4, and a PEG < .2, you have to think its a bargain. Also LDK has firm contracts for virtually all of its production in 2008 and 2009 at fixed prices. For the last several quarters, this has hurt their margins. If there is an oversupply problem here or coming in the near term, LDK should weather it well. Their fixed price strategy will start paying dividends. Further they are one of the leaders in adoption of UMG solar. This should help them in two ways. It should allow them to use virtually all of the scrap that they buy, without running it through their polysilicone plant (an added cost). It should give them high margins on this sector of their solar manufacturing. This all means more profit for LDK. It also likely means management is doing a great job.

2008 Oct 09 10:43 AM

[David White:]

Oh, and LDK got an upgrade from one analyst to buy recently. FSLR and SPWR are going the other way. Even GS hasn't downgraded LDK.

2008 Oct 09 10:45 AM

[Peter Müller:]

Solar is about to become a main energy source in the not to distant future. when polysilicon prices will come down substantially, total module manufacturing costs per Wattpeak will be around 1-1,50 USD.
Some Chinese Modulmaker like Yingli have module processing costs of under 1 USD, and 75% of their total costs are silicon-costs!
These raw material costs can be reduced dramatically when polysilicon becomes abundant. People do not understand that the learning curve of the PV Industry is incredible. I predict module prices of 1,5-2 USD/Wattpeak (Today above 4 USD) at the beginning of next decade. The social benefits of solar technology are unlimited as it will help us to mitigate climate change in the long run.
Greetings from Germany

2008 Oct 10 11:56 AM

[Gumby:]

Goldman turns cautious simply because oil prices and stocks are falling fast.. Goldman want to keep both feet in both oil and solar stocks... Sell Big Oil stocks!!

2008 Oct 16 11:43 AM