North Coast Solar Stocks

August 21, 2009

Jefferies Turns Cautious; Downgrades Many Stocks

Filed under: ASTI, CSUN, ENER, ESLR, FSLR, SOLF, SPWR, STP, WFR — Tags: , , , , — Jason @ 9:31 am

Posted by Eric Savitz
barrons.com

Jefferies & Co. analyst Paul Clegg this morning turned cautious on the solar sector, slicing his ratings on many companies in the sector.

A key issue, Clegg writes in a research note, is that the downward spiral in pricing is likely to continue. “While accompanied by reduced production costs, we believe this could lead to weaker-than-expected 2010 ests and concerns about value destruction in the sector,” he writes. ” In our view, liberal Chinese lending practices encourage over-production and capacity expansions in a market that needs rationalization.”

Clegg concedes that falling prices bring the market closer to grid parity, but he adds that the slide could also trigger political backlash to government incentives, as European PV makers get hurt by Chinese competition with the help of European tax-payer and rate-payer money. While end markets are showing signs of improvement, he adds, “they are slow and do not appear ready to support the levels of volume production being planned for 2010.”

Clegg adds that even if falling silicon prices help solar companies maintain unit gross margins, “lower ASPs make them more dependent on chasing volumes to support the marketing and distribution networks necessary to drive growth.”

The Jefferies analyst sees ASPs down 20%-25% by Q4 from Q2, with another 15%-20% drop by Q4 2010.

Here’s a rundown on his downgrades today:

* Ascent Solar (ASTI): To Underperform from Hold.
* China Sunergy (CSUN): To Underperform from Hold.
* Energy Conversion Devices (ENER): To Underperform from Hold.
* Evergreen Solar (ESLR): To Underperform from Buy.
* First Solar (FSLR): To Hold from Buy.
* Solarfun (SOLF): To Underperform from Hold.
* SunPower (SPWRA, SPWRB): To Hold from Buy.
* Suntech (STP): To Underperform from Hold.
* MEMC Electronic Materials (WFR): Maintains Buy rating.

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