North Coast Solar Stocks

September 27, 2009

Solar analyst sees supply, other challenges-Barron’s

Filed under: FSLR, SPWR, STP, TSL, WFR, YGE — Tags: , , , , , , — Jason @ 5:32 pm

Sun Sep 27, 2009 5:32pm EDT

NEW YORK, Sept 27 (Reuters) – Hapoalim Securities analyst Gordon Johnson, who accurately predicted a fall in solar stocks last year, said solar companies face excess supply and other challenges through 2010, according to Barron’s on Sunday.

The photovoltaic sector will see a supply of 7.1 gigawatts this year and about 10.8 GW the next, compared with demand of roughly 4.3 GW this year and some 6 GW in 2010, Johnson told the weekly business newspaper.

Manufacturers of crystalline polysilicon, which is used in some solar cells, could also face lower demand, even as plants that take three years to build come online, Johnson told Barron’s in an interview.

Johnson told the paper that polysilicon prices, now $50 per kilogram to $60 per kilogram, are likely to fall and might dip below the break-even level — $25 per kg to $28 per kg — which is bad news for producers like MEMC Electronic Materials (WFR) and Wacker Chemie.

Johnson has a price target of $9 on MEMC. It closed at $17.29 on Friday on the New York Stock Exchange.

Johnson told Barron’s that solar companies have seen their stocks rise of late on expectations of demand from China this year and the next, but those hopes were overblown.

He downgraded one such company, China-based Suntech Power Holdings Co Ltd (STP), to “sell” this year because of accounting and other risks, according to Barron’s.

Suntech faces certain cost disadvantages compared with some rivals as Yingli Green Energy Holding Co Ltd (YGE) and Trina Solar (TSL), Johnson said.

Suntech has committed to buy polysilicon at higher than current market prices and it outsources a part of the manufacturing process, which is more expensive, he told Barron’s.

Johnson has a target of $9 on the stock and expects the company to make 7 cents per share this year, and 12 cents per share in 2010, according to Barron’s. Suntech closed at $15.75 on Friday on the New York Stock Exchange.

Among other stocks, Johnson told the paper investors had become bullish on First Solar Inc (FSLR) because of a memorandum of understanding for a solar project in China.

But he also told Barron’s the project was subject to a key government decision and did not yet have financing.

He sees the company make a profit of $6.56 per share and revenue of $1.8 billion this year, and $3.07 per share and $1.9 billion in revenue in 2010, the paper reported.

San Jose, California-based SunPower Corp’s (SPWRA, SPWRB) advantage of better quality products is eroding as the quality of Chinese modules has gone up while their costs are lower, Johnson said.

He sees a profit of 98 cents per share and revenue of $1.3 billion this year, and $1.11 per share on $1.8 billion in revenue in 2010, but added SunPower has one of the highest stock-option expenses in the sector.

He has a “sell” rating on the stock with a $15 target, Barron’s said. It’s stock closed at $30.53 on Friday on Nasdaq.

Johnson said that Trina was the best placed among these firms. He has a price target of $24. Trina closed at $31.44 on the New York Stock Exchange on Friday.

For Yingli, Johnson told Barron’s he sees a risk of write-downs on inventory for the third and fourth quarter.

He has a price target of $9 for Yingli, it said. Yingli closed at $12.60 on the New York Stock Exchange on Friday.

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