Solar Stock Villain: The Euro
2011 EPS declines, for $1.35/euro to $1.25/euro:
STP 0.90 to -0.07
SPWRA 2.03 to 1.37
JASO 0.51 to 0.38
CSIQ 1.99 to 0.05
FSLR 7.78 to 6.78
YGE 1.00 to 0.37
TSL 2.20 to 0.74
(EPS in US$. Source is Barclays)
Wells Fargo Securities initiated coverage of Yingli with a hold rating on Wednesday, citing the larger concerns shared by many on the Street that the company's polysilicon plant ramp-up will continue to be as drag on earnings. Suntech continues to be viewed by the Street as the Chinese vertically integrated player with a relatively uncompetitive cost structure...
The scariest edge of the economic unrest in Europe, as it relates to solar, are recent rumblings out of Spain that it is considering retroactively reducing feed-in tariff levels on existing solar projects...If Spain were to follow through on its threat, the primary concept of solar investments being safe due to the long-term nature of the feed-in tariff contracts, would be thrown into question...
"I certainly would say that Spain is the most distressing example. Your confidence in a government to deliver on any promise changes with a cut in a sovereign debt rating," said RBC Capital Markets analyst Bush. "I never thought that being in the solar research business would require me to be a European sovereign debt risk expert," the analyst quipped...
Whereas a solar-wafer maker or solar-cell maker in China is manufacturing in the same region that it is selling, the solar-module makers might manufacture in China and then sell in euros in a country like Germany. "It's a gradual bleed when you have to hedge currency, and eventually it hits all the module makers," Dubinsky said. The more balance sheet items that a solar company carries -- such as accounts receivable -- only raises the magnitude of the potential currency charge...
Barring a euro rebound in the third quarter, solar module makers may face two options: allow their margins to be squeezed, or try to pass on price increases to customers in a declining subsidy environment. "Something has to give in the next couple of months," Dubinsky, the Wells Fargo analyst, said...
Yet a larger question remains for solar investors, beyond the fear that the euro could still go lower, beyond the fear that earnings expected in the second quarter 2010 will be eaten into by forex charges, and beyond the fear that cuts in solar subsidies by European governments saddled with debt will come sooner rather than later. It all raises the larger question: is the thought that there will be an inflection point for solar stocks out on the 2011 horizon, bordering on wishful thinking at this point?...
thestreet.com
thestreet.com
May 19 (Bloomberg) -- Asia stocks dropped to a three-month low and metals tumbled after Germany banned speculators from some bets against government bonds and financial institutions.
The euro weakened below $1.22 for the first time since April 17, 2006 bloomberg.com
my comments:
I knew they have currency exposure, but I didn't realize how big it is, especially for STP, TSL, YGE, and CSIQ.
JASO and FSLR take a much smaller hit to EPS. JASO only gets 20% of its revenues from Europe. I don't know why FSLR does (relatively) well.
It will be interesting, what TSL and SOLF have to say about this, when they report on May 25th.
Retroactively changing the FIT would be totally unprofessional, a breech of trust. It would poison relationships for years.
My obsession with balance sheets, is because these kind of exogenous shocks, coming out of nowhere, seem to happen regularly. Companies with good balance sheets survive, and prosper on the upturn. Companies with poor balance sheets die, or are so crippled they can't take advantage of the upturn.
disclosure: long FSLR at 125, will buy more in equal-$ amounts, at 100 and 80. If we go lower than that, I'm out of cash and courage. |
