North Coast Solar Stocks

July 13, 2009

Solar Stocks Eclipsed

Filed under: ESLR, FSLR, SPWR, STP — Tags: , , , , , — Jason @ 5:30 pm

Peter C. Beller, 07.13.09, 5:30 PM ET

The solar power industry may be about to deliver investors some bad news. Analysts at two big banks say leading solar companies may miss expectations when they announce profits and could lower their forecasts for the rest of the year. Leading to the disappointment are rapidly falling prices for photovoltaic systems amid fierce competition for customers during the recession as well as scarce financing for new projects.

One side effect of lower prices is that solar buyers are putting off their purchases, guessing that they can get the same amount of power for less money if they wait a few months, writes Deutsche Bank solar analyst Steve O’Rourke in a recent report. There are several types of solar cells on the market, and some manufacturers can claim higher efficiency, but solar power is a basically a commodity business. Customers buy based on the price per watt of installed power. As the recession cuts into corporate spending on technology, prices look set to fall from $2.50 a watt to $2.00 in the next few months, to just $1.85 by next year, predicts O’Rourke.

That should force many solar companies to lower their forecasts for the rest of 2009. O’Rourke points to profit warnings from Germany’s Phoenix Solar and ErSol as harbingers of what to expect when the industry’s big companies report quarterly earnings. O’Rourke says companies are likely to miss analyst expectations this quarter and may have to write down their inventories by millions of dollars as prices fall.

SunPower (SPWRA, SPWRB) illustrates the industry’s woes. The San Jose, Calif. firm can afford to charge more than competitors because its solar cells produce more electricity from the same amount of sunlight than rivals’. Nevertheless, SunPower’s prices fell 10% in the first three months of the year and sales dropped 50%. Both declines are smaller than the industry’s as a whole, notes O’Rourke, who rates the company a “Hold.” He thinks the firm could lower its 2009 forecast.

Analyst Timothy Arcuri of Citigroup isn’t as optimistic. He rates SunPower a “Sell” in a recent report, explaining that falling prices will likely whittle away the premium prices the firm currently charges customers. If this bearish thesis is correct, it could spell bad news and downward revisions for First Solar (FSLR), Evergreen Solar (ESLR) and Suntech Power Holdings (STP) as well.

One possible bright spot for the industry is the American Recovery and Reinvestment Act, signed into law in February. The bill includes grants for renewable energy projects, including solar, and reimburses buyers for 30% of their total cost. Last week the government announced guidelines for applications and reimbursements could go out later this year. The Energy Department estimates it will disburse perhaps $3 billion of such grants, boosting investment by $10 billion to $14 billion, notes O’Rourke. Citigroup’s Arcuri, however, cites “widespread skepticism” that the program will bring new investors.

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