As prices for solar panels and modules stabilize, stocks in the solar energy companies have once more put on a growth spurt. Since the beginning of the year shares of SunPower Corp. (NASDAQ: SPWR) are up more than 300% and shares of China’s Canadian Solar Co. Ltd. (NASDAQ: CSIQ) are up nearly as much. Industry consolidation is not a far-fetched notion any longer.
SunPower is back in the money after the company sold a 60% stake to Total S.A. (NYSE: TOT) for $23.25 a share in the summer of 2011. Shares are trading at around $23.50 at noon on Monday, after peaking at over $28 in late July. It’s not hard to imagine that Total may want to shed SunPower, either through a sale or a spin-off. What’s a bit harder to imagine is that there’s a buyer lurking in the weeds.
Another possible target is the solar energy division of SunEdison Inc. (NYSE: SUNE). The company said last week that it would be spinning off its semiconductor business into a separate company next year. In the second quarter of this year the semiconductor segment provided about 60% of SunEdison’s total revenues of $401.3 million. But the company’s solar business has historically provided most of the revenues and could be both a target as operating losses in the solar energy segment continue.
Canadian Solar has been on a tear, and the company’s market value is a fairly modest $587 million. But that’s most of the Chinese solar players. Only Trina Solar Ltd. (NYSE: TSL) and Yingli Green Energy Holding Co. Ltd. (NYSE: YGE) have higher market caps.
Provided that the Chinese government either encourages or permits consolidation, any of these three could be an acquirer. The likeliest target, of course, is SunTech Power Holdings Co. Ltd. (NYSE: STP), which is reorganizing and which the government has already seemed to give up on. Other possible targets include ReneSola Ltd. (NYSE: SOL) and JinkoSolar Holding Co. Ltd. (NYSE: JKS).
JA Solar Holdings Co. Ltd. (NASDAQ: JASO) stands to benefit from the increased demand for solar power from China. That country is set to overtake Europe, the U.S., and Japan as the world’s largest consumer of solar panels and modules. That’s good for the Chinese solar makers, but it will be difficult for U.S. analysts and investors to figure out exactly what’s happening with the individual companies due to the lack of real transparency into their operations.
And First Solar Inc. (NASDAQ: FSLR), the largest player in the field with a market cap of around $3.8 billion, doesn’t figure here. It is the only remaining company that does not use silicon in its solar cells and there is absolutely no reason for it to buy any of these silicon-based competitors.
Our picks? Total would be happy to jettison SunPower, but the company’s $2.8 billion value is a problem. SunEdison’s solar business could be snapped up by Total or SunPower, but the price would have to be right.
The most likely Chinese acquirer is Trina Solar and the most likely target is of Suntech, or at least some piece of it. Among the other Chinese firms, JA Solar could also make a play for Suntech. Yingli could be a buyer while ReneSola and JinkoSolar are more likely to be targets. The Chinese solar industry needs more consolidation. How, when, and who survives are less clear.
Two ETFs to watch are Guggenheim Solar (NYSEMKT: TAN), which is up more than 80% so far this year, and PowerShares WilderHill Clean Energy (NYSEMKT: PWB), up more than 40%. Both are less liquid than the company shares and their gains have been smaller, but both should do well if the solar stocks keep running up.