Jack Yetiv

Solar Stocks Break Down Yet Again

HERE IS A COMMENT I WROTE IN RESPONSE TO ANOTHER SOLAR ARTICLE ON SA ON SEPT. 23, 2009, in which the author argued that FSLR was worth $150+ and that TSL (a company which I like a lot but which is probably fairly priced in the $30-$35 range) is worth more than $35:

First, I think your metric of cost/watt of panel is the WRONG metric to use. The correct metric is cost per INSTALLED watt. Since you have to install almost twice as many FSLR panels to equal the output of a silicon panel, your land cost is going to be substantially higher, as will be balance of system costs such as racking, wire, labor, etc. When you look at cost per INSTALLED watt, the cost delta between thin-panel and silicon-based panels is much narrower.

In addition, we KNOW that silicon-based panels will produce power for 30 (and more) years--because we have panels of that age out there. We do not have any 30-year-old thin-film panels out there so their longevity is more of a question in my mind.

Also, the rooftop market is almost off-limits to thin-film panels because such panels require almost twice as much roof space.

Given the foregoing opinions which I hold, I disagree that FSLR is good value at $150/share. I do not doubt that FSLR sales will grow significantly in the next few years because overall solar panel sales are going to increase trememdously.

But I will bet you that by the end of this year--if not sooner--FSLR's 50%+ margins will be history, and I will also bet that its margins will be in the 30's in 2010. If margins are cut in half, FSLR can double sales and yet not make any more profit. That outcome does not justify a PE of approx 20, which is where FSLR is right now.

As to TSL, I like it a lot (see my articles on TSL last year, before others began touting it), but am concerned about buying it at $35. Although there is upside potential, I think downside risk is significant as well.

I THINK THE ABOVE COMMENT STILL APPLIES. Obviously, the market now agrees with me that FSLR was overpriced at $150. We'll see what happens with TSL after earnings. As much as I like the solar industry and the potential it has to solve a lot of our problems, it has largely become a commodity business and I believe 15-25% gross margins and 10-15% operating margins will be standard fare in this business going forward.

Jack Yetiv

Jack Yetiv

The Sweet Smell of Solar Values

First, thanks for introducing Systaic--I'm not familiar with it and will need to look into it.

Second, I have some disagreements with your conclusions. I have liked TSL since early 2008, as you can see from SA articles I wrote recommending it. In fact, I still like (for the same reasons I expressed in 2008) TSL's integrated business model and the geographic dispersion of its customers, and its forward-thinking lack of reliance on the European market. Having said all that, a forward PE of 13.5 against 2010 projected earnings is not a screaming bargain. Depending on market sentiment for solars, this could be fairly priced, somewhat underpriced (ie, suggesting some upside) or somewhat overpriced (ie, suggesting some downside risk).

Where TSL's stock price goes largely depends, in my opinion, on where ASP's end up in the second half of 2009 and in 2010.

I can make very compelling arguments that ASP's in 2009 and 2010 (1) will fall from where they were in Q2, (2) will go up from where they were in Q2, (3) will stay stable from where they were in Q2.

The problem is--I'm not sure which one of my compelling arguments is most likely to be correct. My GUESS is that ASP's will continue to drop, but not as much as some of the doomsayers think they will, and I believe this will occur because demand will increase in late 2009 and 2010 more than many expect. But my confidence level in this prediction is not super-high, and a forward PE of 13.5 does not leave much room for error.

Further thoughts later.

Jack Yetiv

Solar Grade: A Silicon Revolution

In additional to decreased cost of silicon, I also expect that watts/gram of poly will probably double in 5 years from todays.

This will be due to two key things: (1) increasing efficiency from about 16% today to mid-20's in 5 years (SPWR should be rolling out 23% panels next year), and (2) thinner wafers.

So even if poly prices did not change, cost of poly per watt will decrease substantially over the next few years. Factor in a drop in poly costs, and overall panel prices are well on their way to costing half as much as they do now within a few years.

Jack

Solar Stocks Feeling the Heat

Robert, thanks for correcting my faulty math. But of course, this only potentiates my point. A 50-US-cent subsidy per KWH is more than generous, and it seems to me should be more than enough to stimulate continued large purchases--even in Spain, not to speak of the other new markets.

Jack

Solar Stocks Feeling the Heat

Not to mention the fact that even at 33 euro cents, that's not exactly a pittance--we're talking about 21 US cents per KWH!

Also, as Spain's subsidies decrease (and Germany's, by a relatively small 8% per year), several new markets are coming in strongly, especially Italy.

Although TSL has been selling off every day for more than a week, strangely enough, in Q3 and onwards, Spain will represent only 16% of TSL's sales, while TSL is the market leader in Italy.

Jack

Which Are the Bargains In Solar Stocks?

Larsson, please refer me to where TSL has guided to $4+ for 2008. As to your being "sure" it will be $8 to $10 in 2009, I would really like to know where you got that one.

I have made my methodology clear--I use consensus which I find on Schwab Earnings Reports, for all companies. My own analysis calls for $4.50 on TSL in 2008, and $2.75 on CSIQ. I do not project 2009 because I believe that is witchcraft--waay too many unknowns.

Using my own estimates rather than the consensus does yield a lower PE for TSL than CSIQ. However, I will only be comfortable with my $4.50 estimate once TSL announces.

Jack

Which Are the Bargains In Solar Stocks?

Dear Bubba,

Agree FSLR is overpriced, but I would be fascinated to learn how you arrived at a fair price of $16 for ESLR.

As to the "stupid" money--that was much more true 2 months ago than it is now. What I have seen is that the low PE stocks (CSIQ, SOL, SOLF) have run and the high PE stocks (FSLR, SPWR and STP) have not. Seems to me the "stupid" money is getting smarter.

TSL hasn't moved as much because it hasn't reported. I expect good things from TSL.

Jack

Which Are the Bargains In Solar Stocks?

Some thoughts.

The comment that "everyone knows TSL has the lowest PE" may have been based on my articles when TSL was at $41. Now that CSIQ has fallen from the $40's to the $30's, and now that TSL has gone up from $41 where I recommended it to $48, I think the FPE's on these two companies for 2008 are comparable at about 15.

I think it is folly to use 2009 FPE's when the second quarter of 2008 hasn't even been reported. Too many things can change in 18 months (yes susbidies, no subsidies, ASP's, price of poly, etc).

However, CSIQ has run hard due to its recent blowout quarter, but TSL hasn't yet reported. Assuming the delay in reporting is not indicative of a problem with earnings (and my guess is, it is not), I think TSL has the better chance of running once it does report, although I think the overall DOW may be in for a rough week this week. I plan to buy more TSL if it can be bought at $45 and CSIQ if I can get it at $35.

As to ESLR--yes, the two big orders certainly put this company on the map, but we have no knowledge as to the pricing of the orders, the likely execution by this company, and hence, we have no idea what its net profit margins will be.

So this one is still very speculative in my book. Everyone had great hopes for AKNS a year ago, and what has its price done?

Finally, as to STP--although it surprised this quarter, it also hasn't done much in the past few months, price-wise. Its 2008 PE is close to 30, and I simply see no reason it deserves a PE twice as large as either TSL or CSIQ.

As to YGE, I calculate its PE to be greater than 20, and again, no greater compelling value than TSL/CSIQ.

Final note: The solars have run nicely during solar earnings season, so do NOT be shocked if they slide back and consolidate, especially if the markets retest their March lows. Also, these stocks are EXTREMELY volatile (sometimes for good reasons, often not) and if you can't handle that, this is not the space for you.

Conclusion: Although there is some risk of downside moves, to me, TSL and CSIQ, at $45 and $35, offer the most compelling values in the solar space today.

Jack

Solar Power Will Be Transformational in the Next Decade

Drugal,

Congrats! Total cost is about $6.50/watt, just about right. Net cost to you is about $3/watt, excellent.

What panels and inverter did you go with? How manu strings running at what voltages?

I'm running 4 strings of 9 panels each, pushing 550 volts DC when the sun is strong and the temp is low.

Jack

Solar Power Will Be Transformational in the Next Decade

I completely disagree with you, Jeff. My article is FORWARD-looking, not backward looking like the DOE, which under the current administration has been negative on renewable energy, and has been awful at predicting oil and gas prices.

In other words, in my article, I was NOT comparing present solar to present conventional power that does not take environmental costs into account.

I am looking at the question of, What kind of power plant do we PLAN today to produce future power, which is the ONLY logical way to look at it because what is already built does not require decision-making.

You also misunderstand my environmental perspective. I said NOTHING about MY beliefs about CO2 or global warming, nor about nuclear, coal or nat gas--although you can certainly guess what my own views are. I did not express MY views because what Jack Yetiv thinks is irrelevant to a utility that is trying to decide what to build. The utility needs to look realistically at the costs and political climate for various alternatives.

And I believe that utilities are quickly realizing that old-style polluting and carbon-belching coal plants (on which DOE bases its useless cost numbers) ARE SIMPLY NOT GOING TO GET BUILT IN ANY MEANINGFUL QUANTITY IN THIS COUNTRY, and the same probably will apply to nuke plants. Whether you think it should be this way is irrelevant--I believe it is clear that this is the way IT IS.

Nat gas plants (DOE cost on those is probably based on gas at $6.50/MCF, while gas is now trading at almost $11/MCF) are also problematic because they are going to be very expensive to run--and still have the CO2-production political problem.

My article was meant to be revolutionary to our thought processes going forward, so what DOE says or what disclaimers are published by analysts don't mean much.

Jack

Solar Power Will Be Transformational in the Next Decade

Jack K,

I certainly agree with your comments re: FSLR or even SPWR.

But buying at a PE of 12 a company like TSL--that is expected to more than double its earnings this year--geez, that seems to me to be VALUE investing, not momentum investing.

Jack

Solar Power Will Be Transformational in the Next Decade

Zawy, I am NOW paying 13 cents. I rechecked prices yesterday (powertochoose.org) and the mean is closer to 15 cents. One poster said he was paying 22 cents. Of course, nobody in Europe pays under 20 cents.

And I GUARANTEE you that given where coal and nat gas prices are going, and the need to build clean plants, EVERYONE in the US will be paying 15 cents within 3 years. And what about in 5 years? 10? 20?

Using 15 cents is very much PRO your side. The more realistic number over the next 20 years in probably over 20 cents.

Jack

Solar Power Will Be Transformational in the Next Decade

Re AKNS:

Unfortunately, it has not made enough money to establish a track record, putting it in an entire different category than companies that will sell near a billion dollars of product in 2008 and make dollars per share earnings.

Companies like AKNS often fail to make anything. Whether AKNS is one of the minority that will give its investors a good return--your guess is as good as mine.

There may well be a lot of money to be made in solar installation, and maybe Andalay is truly the be-all and end-all. I haven't studied it enough to give a valid opinion about it, but my question is this:

If I were IPO'ing a plumbing company, would it be worth a lot? plumbers charge $50-100 per hour, and solar installers probably don't charge more. So it comes down to, Does Andalay really present such an advantage? And will nobody be able to easily improve on that design?

Since I don't know the answer to those questions, I cannot intelligently evaluate AKNS.

Jack

Solar Power Will Be Transformational in the Next Decade

To Ramgolfer:

I lent out my crystal ball and it was not returned, so I cannot say if my pick (TSL) will turn out likie TMA. If you find someone who can give you guarantees in the stock market, you certainly don't need to waste your time reading my stuff. Of course, TSL could turn out like my recommendation of CSIQ (up 41% in less than 3 months) or HTE (up about 15%, plus about 5% in dividends from where I recomended it a couple of months ago). Including my TMA recommendation, I have broken about even in the past 5 months in the stock market. I would bet that is in the upper 10% of all professional money managers in the US.

The bottom line is--I write an article citing facts, and then I connect the dots. NOBODY has yet pointed out a wrong FACT in my articles. As to connecting the dots--everybody needs to do it on their own. I simply provide leads.

To Supershort:

I spend a lot of time very carefully crafting my articles. I did NOT recommend SPWR, nor did I say that there are "companies offering solar out of the box" TODAY. You correctly note I do not have a crystal ball--although I suspect every reader knows that, but without ANY factual or logical basis, you state,

"most of your future predictions are highly hopefull dreams."

Those kind of unsubstantiated comments help no one. I have made a case--please make yours using other facts or other analysis.

As to doing stuff for the environment, read my articles and bio to see what I have done. I hope you have done the same.

The problem for wind is two-fold: (1) the distributed model won't work due to NIMBYism and inefficient small-turbine production metrics, and (2) need for distribution. However, wind will be used where there is a good wind resource. Solar where the solar resource is best, until solar becomes so cheap it will sporint ahead of wind almost everywhere.

To zawy:

My article MOST DEFINITELY takes upfront costs into account.

2KW system, $10,000 installed ($5/watt; SCE is paying $3.50 for its 275 MW). Makes 360 KW/month (6 hrs per day of sun in best areas), 4320 KW per year. At 15 cents per KWH, $648/year saved.

Interest cost on $10,000--loan rates today, under 6%. Call it 6%--interest is $600/yr. Add in principal on a 30-year mortgage--just about equal to $648. And do you think electric will be 15 cents in 10 years? 20 years?

So, contrary to your statement, I DO NOT assume 0% loans.

Agree with your energy storage comments. We're not there yet.

But we don't have to be yet. Lots of need for peak-load power sources today, and solar fits that bill.

Jack

Solar Power Will Be Transformational in the Next Decade

To Mr. Stinson:

You say:

I think I agree that solar has not yet achieved parity with fossil fuels for electricity generation, except possibly for large installations of mirrors focused on a boiler,

Can you tell me the basis for this? What facts in my article are faulty, or where is my analysis incorrect?

To Aurora:

CSIQ was my favorite 3 months ago (see article I wrote on SA I think Feb. 4). I like TSL better now. My article tomorrow will explain why in some detail.

As to EMKR and ASTI, those plays are speculative, and thus offer a lot more risk for not that much more upside, IMO. It's too hard to tell how likely any of these technologies are to make money.

I believe TSL easily offers a 50-100% upside this year with relatively low (20-30%) downside risk.

Jack