Evergreen Solar Lures Investors But It's Still a Play on Potential
By KAREN RICHARDSON
Staff Reporter of THE WALL STREET JOURNAL
July 7, 2005; Page C3
Fans of Evergreen Solar Inc. may remind you of Steve Martin's television weatherman in the movie "L.A. Story," perpetually delivering the same forecast: "Sunny. 72."
The maker of solar wafers, cells and modules is blessed with an abundance of high hopes from investors who see it as the stock market's only pure "solar-power play." Yet these same investors may be putting together a forecast the company can't deliver on anytime soon, and in the process are offering a reminder about how one rally -- in this case, oil's -- can spark another. Even Evergreen's chief executive stresses that his company is still dawning.
"We have a lot of potential, but we're pretty small right now," says Rick Feldt, Evergreen's president and chief executive, who notes "aggressive but rational plans" to expand.
Based in less-than-tropical Marlborough, Mass., Evergreen has little power to increase its prices, but its costs are rising. Meanwhile, much larger companies are expanding their solar-power business amid the clamor for alternative energy sources as oil surges.
The oil price is almost a proxy for Evergreen's shares: When oil spikes, so does the stock. The stock jumped 10% in one day last October, the Monday after the price of a barrel of oil hit $50. A sustained rally in commodities and other raw materials can set investors casting about for related winners -- not just the oil company, but the company that will shine should oil's fortunes burn too brightly.
Evergreen's Nasdaq Stock Market-listed shares have risen 50% this year and more than quadrupled to a high of more than $8 in April from about $2 in August. They closed yesterday at $6.67. The company, which had an initial public offer in 2000, has sold additional shares several times in the past couple of years. Its market value peaked at more than $570 million in April, up from about $14 million in early 2003. Since the stock has pulled back a bit, the market value is about $412 million -- but the interested are still interested: At least six analysts publish research on the stock, compared to one in 2003.
One investor is Boston mutual-fund giant Fidelity Investments, which like most of Evergreen's largest shareholders boosted its stake after a secondary offering in February. Fidelity owns about 12% of the company, while two Merrill Lynch & Co. mutual funds own more than 5%, according to FactSet Research Systems Inc. Fidelity declined to comment on the stock, citing a policy of not discussing specific stocks. The Merrill Lynch funds' manager, based in London, couldn't be reached for comment.
Evergreen has a partner, indirectly, in the German government, which is footing 45%, or about $35 million, of the cost for a joint venture with Q-Cells AG, a German solar company.
While Evergreen has been in business since 1994, it has yet to post a profit. Revenue is rising fast, however, with $10.3 million in the first quarter compared with $3.1 million a year earlier.
Still a small manufacturer, Evergreen has pioneered a technology that sets it apart from its bigger competitors, which do other things besides creating hardware for harnessing the sun's energy. Its "String Ribbon" technology creates wafers out of melted silicon, wasting less than the more common process of cutting or sawing silicon off silicon ingots.
Walter Nasdeo, an analyst in New York at Ardour Capital Partners LLC, says the Evergreen wafers use about 35% less silicon than the rest of the industry to produce one watt of power. Ardour Capital, a boutique investment company, doesn't own any Evergreen shares. Mr. Nasdeo rates the stock a buy and looks for it to hit $8 within a year.
Evergreen's Marlborough factory can produce 15 megawatts of energy a year in terms of the solar panels it churns out, less than 1% of the total amount of solar power produced by the industry world-wide each year. "We're just a rounding error," Mr. Feldt says.
After breaking ground on its new German facility, Evergreen aims to ramp up annual power production to about 40 megawatts, still below the output of its competitors. Sharp Solar, a unit of Sharp Electronics Corp., expects to produce about 400 megawatts this year, while Kyocera Solar, a unit of Japan's Kyocera Corp., produced more than 100 megawatts last year.
Evergreen's small size has affected its ability to guard against the rising cost of silicon. A world-wide shortage, prompted by heavy demand among semi-conductor makers, has driven up the price of the material, which accounts for about 70% of the cost of making a solar panel. Most panel manufacturers have been able to raise prices slightly.
While Sharp Solar and Kyocera Solar have had long-term contracts for years to secure the price of silicon, Evergreen had been able to secure only three-to-six- month contracts for silicon. In the past few weeks, however, Evergreen secured an 18-month contract, indicating that suppliers are beginning to take the company more seriously, Mr. Feldt said.
Write to Karen Richardson at karen.richardson@awsj.com1
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