Oil is off the peak again, the markets went soft, and governments are going to have to review spending on all fronts… including most subsidies. All of this aligns rather poorly for the solar sector. After the recovery we have seen from the lows in many of the names, the sell-off here could continue if fresh research reports even remotely live up to the their words. Last night came came a bash on First Solar, Inc. (NASDAQ: FLSR) by Jim Cramer on CNBC’s MAD MONEY show. This morning is a big analyst sector downgrade from Credit Suisse in the entire solar sector with some outright nasty price target cuts in First Solar, Trina Solar Limited (NYSE: TSL), JA Solar Holdings Co., Ltd. (NASDAQ: JASO), GT Solar International, Inc. (NASDAQ: SOLR), ReneSola Ltd. (NYSE: SOL), and Suntech Power Holdings Co. Ltd. (NYSE: STP). MEMC Electronic Materials Inc. (NYSE: WFR) is the only solar name maintained as Outperform at Credit Suisse. While Guggenheim Solar ETF (NYSE: TAN) was not directly mentioned, this affects nearly all of its components and it is paying a price.
Credit Suisse’s Satya Kumar downgraded the entire solar sector weighting to Market Weight from Overweight, but the price targets are far more damning than the rating cut might indicate. Last night’s comments of caution from Jim Cramer on First Solar, Inc. (NASDAQ: FSLR) were mostly chart related, but he also pointed to the pressure of pricing and subsidies.
Credit Suisse went very cautious on the solar cycle on supply growth and subsidy concerns. New cell capacity is being added at a current monthly rate of 2 Gigawatts per month in 4Q10 and how the top 20 producers aim for production hikes of 50% in 2011 while there is expected to be only “flattish market for demand in 2011.” New entrants are also coming on-line and factory utilization may fall from 2011′s first quarter. All this points to price declines. As a result, Kumar expects solar stocks will likely stay under pressure.
What is interesting further despite all the negativity, Kumar notes that the firm is not turning secularly negative as it believes that falling solar prices will continue to drive more penetration and that should open up opportunities to reinvest at a later date. Today’s call is more cyclical than secular, near-term rather than the end-game, based upon supply growth causing a period of stock weakness. The report even hedges a bit noting that investors could even witness near-term rallies in the sector as the stocks are near-term oversold and as investor sentiment is bearish. Cash grants in the U.S. are set to expire in 2010 with a lame duck session before the Republican-controlled House takes over next year. Other concerns revolve around China-inflation fears and fresh fears about E.U. debt blow-ups.
First Solar, Inc. (NASDAQ: FSLR) Cut to Neutral from Outperform; new price target is $127.50 and trimmed estimates in CY11 from $8.80 to $8.50 EPS. Shares are down 3.5% at $125.15.
Trina Solar Ltd. (NYSE: TSL) Cut to Neutral from Outperform; slashed price target to $21 from $36. Shares are down 5.9% at $22.30.
JA Solar Holdings (NASDAQ: JASO) Cut to Underperform from Neutral; slashed price target to $6 from $11.50. Shares are down 7.7% at $7.24.
GT Solar International, Inc.(NASDAQ: SOLR) Cut to Neutral from Outperform; cut price target to $9 from $11. Shares are down almost 9% at $7.64.
ReneSola Ltd. (NYSE: SOL) Cut to Neutral from Outperform; slashed price target to $9.50
from $16.00. Shares are down 8.6% at $8.98.
Suntech Power Holdings Co. Ltd. (NYSE: STP) Cut to Underperform from Neutral; price target cut to $6.75 from $9.00. Shares are down 10% at $7.50.
On MEMC Electronic Materials Inc. (NYSE: WFR), Credit Suisse believes that the company’s exposure to semiconductor operations should limit the downside.
To illustrate just how harsh the comments and trend is, the Guggenheim Solar ETF (NYSE: TAN), formerly the Claymore/MAC Global Solar Energy ETF (TAN), is down 3% at $7.36.
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JON C. OGG