Solar Sector Headed for Price War

Includes: CSIQ, ENER, SPWR
by: Eric Savitz

Macquarie Research analyst Kelly Dougherty Tuesday morning turned bearish on the solar sector, cutting ratings on Energy Conversion Devices (NASDAQ:ENER), Canadian Solar (NASDAQ:CSIQ) and SunPower (SPWRA). Dougherty thinks the companies are going to be hurt by an accelerating price war.

“The Chinese manufacturers have turned up the heat and we don’t see much relief in site,” Dougherty writes. “We expect the Chinese to use their competitive cost structure aggressively to grab share and keep their facilities humming.”

Here’s a rundown on Dougherty’s new views on the individual stocks:

  • Energy Conversion Devices: To Underperform, from Neutral, cutting target to $9.50, from $13 (Which compares to yesterday’s close at $12.44. The pressure on pricing from the Chinese players “is compounded by the fact that we believe ENER’s visibility remains very limited,” Dougherty writes. “We can’t overlook the significantly negative impact that further production furloughs could have on the company’s cost structure without a significant pick-up in demand, which seems mroe unlikely given increasingly aggressive Chinese pricing.”
  • Canadian Solar: To Neutral, from Outperform. Target price: $17.50, a bit above yesterday’s close at $15.30. “Although CSIQ has nade great strides in improving its cost structure,” the analyst writes, “a price war is likely to mitigate much of those benefits.”
  • SunPower: To Underperform, from Neutral. Price target now $23.50, below yesterday’s close at $26.75. “While we continue to believe SPWRA can command a steep pricing premium, a hostile pricing environment is good for anyone,” Dougherty writes. “We don’t expect the premium it is able to command will be meaningful enough to mitigate the margin impact associated with a likely Chinese price war.”

In today’s trading:

  • ENER is down 17 cents, or 1.4%, to $12.27.
  • CSIQ is down 65 cents, or 4.3%, to $14.65.
  • SPWRA is down 50 cents, or 1.9%, to $26.25.

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