September 11, 2008, 10:20 am
No Fun In The Sun: Solar Shares Extend Swoon As Collins Stewart Cuts Estimates, Calyon Chops Price Targets
Posted by Eric Savitz
Here we go again. Solar stocks are off to another difficult morning, as a pair or analysts issue downbeat reports on the sector, citing concerns about the impact on earnings of the weakening Euro - and adjusting for a reduced investor appetite for the shares in the face of retreating oil prices.
Collins Stewart analyst Dan Ries this morning notes that the Euro has weakened 6% against the dollar since mid-August; the current rate of about 1.42 Euros to the dollar is down 10% from a Q2 average 1.56. That’s trouble for the solar industry, which as Ries notes generates 70% of its sales in Euros. (Thanks to lucrative subsidies, Germany and Spain remain the largest single markets for solar products.) Making things worse, Ries notes, is the fact that most U.S.-listed solar stocks have costs denominated in dollars or Chinese RMB. “With ASPs declining while costs stay constant, there will likely be pressure on gross margins and EPS,” he writes.
Ries notes that solar stocks are already down about 24% this month, and that while he is lowering his estimate to account for the currency factor, “we do not want to perceived as having a negative outlook at this point, as we believe the current share prices of solar stocks reflect a far worse demand environment than we believe is likely to occur” in 2009. He adds: “We believe we are near a bottom in solar shares!”
Ries today cut his revenue and EPS estimates today for Canadian Solar (CSIQ), First Solar (FSLR), Solarfun (SOLF), Suntech (STP) and Yingli Green Energy (YGE). The largest changes were for FSLR and CSIQ, he notes. For FSLR, his 2008 EPS drops to $3.94, from $4.12, while ‘09 goes to $7.96 from $8.26. For CSIQ, he goes to $2.60 from $2.81 non-GAAP for this year, and to $4.14 from $4.46 for next year.
While selling solar stocks in the face of a down leg in crude prices seems awfully short-sighted, that certainly seems like factor in the intense wave of selling that has swept up on the solar stocks in recent sessions. In fact, the Street revised view on the sector spurred Calyon Securities analyst George Kotzias this morning to cut his price targets this morning on Energy Coversion Devices (ENER), Evergreen Solar (ESLR), First Solar, SunPower (SPWR) and MEMC Electronic Materials (WFR), although he maintains Buy ratings on all of those stocks. “We maintain our long-term confidence in the solar sector,” he writes. “However, we believe that investors are unwilling to pay as much for the earnings of solar shares due the change in the sectors’ risk/reward profile.”
Kotzias’ new target for ENER is $102, down from $85. For ESLR, $12, from $17. For FSLR, $302, from $375. For SPWR, $92, from $100. For WFR, $56, from $70.
“We believe a change in the perception of the current energy markets brought on by falling oil prices has led investors to believe that there is less of a need for solar energy,” he writes. “However, despite the optimism and potential that new reserves may offer in the future, we believe the global energy markets will remain tight and do warrant the need for solar power.”
Kotzias also notes that passage by the Congress of a renewed investment tax credit for solar is “looking more out of sight due to party politics,” which leaves investors “increasingly concerned over the emergence of the U.S. solar market.” He thinks the risks of deals not coming to fruition due to the ITC failing is already discounted in the shares, however, and that passage of a federal incentive program would provide a strong catalyst for the stocks.
This morning:
First Solar is down $11.08, or 5.2%, to $200.17.
Solarfun is down 63 cents, or 5.1%, to $11.64.
Canadian Solar is down $1.35, or $5.9%, to $21.66.
Evergreen Solar is down 48 cents, or 8.1%, to $5.42.
SunPower is down $3.84, or 4.9%, to $75.17.
Suntech is down $2.51, or 6.3%, to $37.40.
Yingli Green is down $1.17, or 8.7%, to $12.33.
Energy Conversion Devices is down $3.51, or 6.1%, to $54.11.
MEMC Electronic Materials is down $2.01, or 5.9%, to $32.04.
Previously:
Solar Shares Collapsing; Where’s The Bottom? (September 9, 2008)
Stormy Day For Solar Stocks; Too Many Panel Makers? (September 8, 2008)
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