JA Solar Impresses, But Falling Solar Prices Due to European Cuts Concern Others

Includes: FSLR, JASO, STP
by: Tate Dwinnell

It’s a good day for JA Solar (NASDAQ:JASO), but for solar as a whole, it’s not a great day. Much of that has to do with reports filed by Suntech Power (NYSE:STP) and First Solar Inc. (NASDAQ:FSLR), two of the world’s largest solar companies, warning about the potential for a significant hit to demand for solar and falling prices due to Europe government subsidy cuts. With Europe accounting for 80% of solar demand, the cuts could have a big impact, particularly if the US, China and India don’t pick up the slack.

"In light of continually evolving (feed-in tariff) structures in our core European markets, it is uncertain whether growing demand from other countries and markets could absorb industry-wide module supply without significant inventory build-up or price reductions," First Solar wrote in an annual 10-Q report filed with the SEC.

Shares of FSLR are off a few percent today and still like they want to test the next level of support around the $120 level. It’s important it hold there or we could be looking at a return to last year’s lows. Shares of STP are also down today and overall continue to look ambiguous to me, not really doing anything. Both stocks should continue to be avoided at this time.

Meanwhile, JASO is seeing a nice pop in the early going this morning after reporting better than expected Q1 results. The company reported a non-GAAP EPS of 0.40/share on revenues of $556 million. That’s a beat on both the top and bottom line and represents significant quarter over quarter growth of 67% and 91%, respectively.

Here are some highlights of comments made by CEO Peng Fang:

  • The company executed well despite seasonal weakness, Italy uncertainty and the Chinese New Year.
  • JASO is the industry’s low cost leader and is confident it can increase efficiencies further.
  • JASO's excited about growth potential in the US market, highlighting a recent partnership with MEMC Electronic Materials (WFR).

Looking ahead, the company expects to exceed shipments of 400MW this quarter as well and is maintaining its full year 2011 guidance at 2.2GW.

Technically, shares of JASO remain in a basing pattern with critical support around that $6 level. It needs to hold there and begin building the right side of the new base. Perhaps today’s move is the beginning of that. I won’t be ready to call the stock bullish until it can get back above both the 50- and 200-day moving averages, which would require a healthy move above $7.