Solar: Rally Extends; Rising Demand Vs. Lower Prices
Posted by Eric Savitz
There’s quite a rally going on in the solar stocks, as the Street engages in a spirited debate on the offsetting impact of rising demand and lower prices.
Solar stocks have roughly doubled off their March lows - and at least for now, the bulls on the sector continue to have the upper hand. In a research note this morning, Cowen analyst Robert Stone asserts that the recent run in the stocks has further to go. “Some observers may argue that it is time to take profits after the strong recent gains in many PV stocks,” he writes. “However, we believe there are additional triggers ahead, notable policy and project news in China and the U.S. While some may wish to trade around positions to take advantage of potential volatility in the broader market, we recommend investors stay exposed to the PV sector.” Among his picks: First Solar (FSLR), SunPower (SPWRA), Suntech (STP) and Trina (TSL).
Stone says a recent memo of understanding signed by Suntech to develop a 500 MW project in Qinghai province in China is further evidence of the country’s emerging solar sector. He thinks China could become one of the world’s three largest solar markets. He also says U.S. support from the stimulus bill should kick in by September. Stone does say that capacity in the industry will exceed demand until 2012; he expects the huge drop in polysilicon prices to spur lower module and system costs, and attractive returns for solar projects.
Meanwhile, Battle Road Research analyst Dave Arcaro today backed off a bearish stance on the sector, moving to Hold from Sell ratings on FSLR, SPWRA, TSL, Q-Cells (QCE.F), JA Solar (JASO) and Energy Conversion Devices (ENER). He remains negative on Yingli (YGE), LDK Solar (LDK), ReneSola (SOL) and Evergreen Solar (ESLR). Aracaro notes that the spot price of polysilicon has dropped to the $65-$75/kg range, from $100-$110 in the first quarter - and that the price could hit $50 by year end. The falling cost per watt should spark demand, he contends. Aracaro contends demand in Europe is accelerating, thanks to falling prices and easing credit conditions in Europe.
One reason for the pick up in interest in solar stocks may be a recent flurry of new project announcements. Suntech yesterday announced a deal with New Jersey-based Petra Solar to market utility pole mounted solar systems. Barclays analyst Vishal Shah says Suntech’s Qinghai project could qualify for a number of ground-based solar incentives that could provide “very attractive” economics for the project. Shah today upped his target on STP to $17.50, from $16.
Meanwhile, SunPower is getting a positive response to a deal to outsource some production to Jabil Circuit (JBL). In response to that news, Wedbush Morgan analyst Al Kaschalk today upped his target on the stock to $25, from $21, which is still below yesterday’s closing price at $30.55. He keeps his Hold rating on the shares. Likewise, Pacific Crest analyst Mark Bachman today repeated his Sector Perform rating on the stock, writing in a note that while he has near-term concerns about the stock, “we also need to recognize long-term operational improvements.”
For now, at least, the market isn’t paying that much attention to bearish calls on the stocks. JA Solar shares are higher today despite a downgrade of the stock to Market Perform from Outperform by Raymond James analyst Pavel Molchanov, who wrote today that the stock deserves a breather after a 50% run-up in two weeks and an 85% move since reporting Q1 on May 19. Molchanov notes that the broader solar rally has come amid a powerful rally in oil prices “with alternative energy serving as the proverbial oil on steroids trade,” while news and speculation on China’s solar initiatives have also helped the group. Time for JASO holders to take profits, he contends.
Soleil analyst Paul Leming today cut his rating on First Solar to Hold from Buy, with a price target of $170, below yesterday’s close at $182.88. Leming says sharp appreciation of the Euro against the dollar over the last six weeks will boost results for Q2 and for all of 2009. But he chopped his forecast for 2010 to $8.25 from $10.27 to reflect expectations that module pricing will remain under pressure in the face of continued over-capacity. By contrast, Broadpoint.Amtech analyst John Hardy today repeated his Buy rating on the stock, setting a price target of $250. He thinks the company’s pending June 24 analyst meeting could prove to be a catalyst for the stock; Pacific Crest’s Bachman made the same point this morning.
In today’s trading:
* First Solar is up $1.13 or 0.6%, to $184.01.
* Evergreen Solar is up 39 cents, or 20.1%, to $2.33.
* China Sunergy is up 43 cents, or 8.1%, to $5.77.
* LDK is up $2.77, or 24.2%, to $14.20.
* Suntech is up $1.65, or 9.2%, to $19.65.
* Akeena Solar (AKNS) is up 24 cents, or 16.2%, to $1.72. (Note that AKNS was up 27 cents yesterday, to give the stock a two-day move of 42%.)
* JA Solar is up 20 cent,s or 3.3%, to $6.18.
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