Solar stocks have been declining over the past two months, largely in response to rapid expansion of the industry and increasing competition against the context of reducing subsidies in Europe. P/E < 5 and PEG <0.5 are common in solar, leading many to think they are undervalued. However, today seemed to mark a turning point, with stocks one again on the rise: Guggenheim Solar ETF [TAN] is up +3.9%. The trigger was the news after hours last night that Total [TOT], the French oil & energy company, has put in a bid for controlling interest of SunPower [SPWRA & SPWRB] at well above current stock price. The result was an immediate leap of +40%, and the rest of the market responded with a solar buying frenzy, despite sub-forecast revenues and some negative forecasts for Q2 in the last few days (LDK, SOL, SATC), as well as disappointment that Italy seems going ahead with the removal of subsidies to solar power as planned, albeit with a more gentle phase-out period. The thinking: If Total are willing to pay so much for Solar, then maybe it’s time to buy in while prices are low
The choice of SPWRA is particularly interesting, as their R&D activities recently have resulted in the highest solar conversion efficiency of any mass-produced cells. If they can bring their production costs down significantly, to around $1/watt, which may be possible thanks to Total’s sizeable investment, this would make them extremely competitive with industry leaders, First Solar [FSLR].
Could this be part of a more general move towards large energy companies getting in on solar? It’s less than a month ago that General Electric [GE] announced they were building a thin film solar factory, setting them up as direct competition to FSLR. If it turns out that the growth of solar is sustainable, which is looking increasingly likely, thanks to increases in cost efficiency that are bringing solar installation efficiencies down to grid parity in some parts of the world, then this could be the start of a major boom.
So far, solar stocks around the word are gaining impressively: LDK (+3.14%), SOL (+5.77%), JKS (+4.28%), JASO (+6.9%), TSL (+2.08%), SOLR (+2.81%), FSLR (+1.13%) are all up. Inverter companies, SATC (+6.67%) and PWER (+0.49%), are also up.
It is hard to tell at this moment whether this will trigger a broader shift to alternative energies. Wind and geothermal stocks have not responded significantly as of close of market on Friday.
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