Goldman Turns Cautious on Solar Sector

by: Eric Savitz

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 (NASDAQ:FSLR) to a Conviction Sell from Buy, slashing his price target to $103 from $365. For SunPower (NASDAQ: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 (NASDAQ: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 (NASDAQ:JASO) was down 55 cents, or 6.2%, to $8.34.
  • Solarfun (SOLF) was down 45 cents, or 5%, to $8.58.
  • Canadian Solar (NASDAQ:CSIQ) was down $1.13, or 7.5%, to $13.85.
  • LDK Solar (NYSE:LDK) was down 71 cents, or 2.9%, to $23.99.