Solar makers are trying to stage a recovery.  First Solar, Inc. (NASDAQ: FSLR) is the leader of the pack in quality and operations and its shares are up about 9% at $42.30 versus a 52-week trading range of $29.87 to $175.45.  Even more impressive is the move in shares of MEMC Electronic Materials Inc. (NYSE: WFR) with a 17% gain to $4.58 versus a 52-week range of $3.65 to $15.04.  Even the Guggenheim Solar (NYSE: TAN) ETF and the Market Vectors Solar Energy ETF (NYSE: KWT) are surging.  We are paying close attention to SunPower Corporation (NASDAQ: SPWR), Suntech Power Holdings Co. Ltd. (NYSE: STP), Yingli Green Energy Holdings Co. Ltd. (NYSE: YGE), LDK Solar Co. Ltd. (NYSE: LDK), Energy Conversion Devices, Inc. (NASDAQ: ENER) and others as well.  Here are the other movers with relative prices to their 52-week highs:

• SunPower Corporation (NASDAQ: SPWR) is up 9.5% at $7.33, down from a year high of $23.36;
• Suntech Power Holdings Co. Ltd. (NYSE: STP) is up a whopping 25% at $3.22 versus a year high of $10.83;
• Yingli Green Energy Holdings Co. Ltd. (NYSE: YGE) is up 17% at $4.85 versus a year high of $13.59;
• LDK Solar Co. Ltd. (NYSE: LDK) is up 11.3% at $5.21 against a high of $14.97 in the last year, although it is easy to stick by the guns that LDK is mathematically bankrupt without the coverage of the Chinese government.
• Energy Conversion Devices, Inc. (NASDAQ: ENER) is up 23% at $0.38 against a high of $4.80 but this is one still is unlikely to survive 2012.

In the world of ETFs, these are running as well: Guggenheim Solar (NYSE: TAN) is up 10.5% at $2.95 versus a high of $9.16 and Market Vectors Solar Energy ETF (NYSE: KWT) is up 11.5% at $4.45.  The more diversified alt-energy ETF of PowerShares WilderHill Clean Energy (NYSE: PBW) is up less than all of these with gains of 4.8% at $5.65.

Before getting too euphoric keep in mind that this is not unusual at the start of a year or new period where sector rotation favors the most beaten up sector.  Besides that, there is always the political angle on the solar sector that is front and center in the elections this year.

What we do know within reason is simple: solar PV unit prices cannot drop by another 50% or so in 2012.  If pricing has bottomed, perhaps these value traps may get to migrate to value stocks after all.  We still expect margin pressure, austerity, and a lack of the ability to pay dividends to all equal concerns of PV panel dumping by Chinese firms leading to a virtual race toward zero.

If you want to know just how big this news is, the S&P Utility Sector was the best performing sector in all of 2011 and its gains were not quite 15%.  To prove the point, the Utilities Select Sector SPDR (NYSE: XLU) ETF rose by 19% in 2011 if you adjust for the dividend payments as so many utilities offer investors dividend yields of 4% and higher.

JON C. OGG

Zhang Longgen, CFO of Jinko, is quoted in a report from Bloomberg News:

We won’t see many mergers and acquisitions at home. Many Chinese companies are more willing to die rather than be bought because it is against their culture to be acquired.

Zhang also pointed out that state-owned or controlled companies are far likelier to survive:

The power of these companies is very incredible as they have enough capital to overcome difficult market conditions. They can shut factories temporarily and resume production when the market recovers.

He did not name any specific companies, but China offered more than $25 billion in loans to several solar makers in 2010, not including Jinko.

Solar panel pricing fell nearly 50% in 2011, to an average of about $0.94/watt. Some of the industry’s largest manufacturers, like Suntech and LDK, doubled their manufacturing capacity during the same year.

Like many others in the solar industry, Zhang is not sanguine about prospects for the industry in the first half of 2012 and expects demand to drop another 10%-20%.

Paul Ausick

The Financial Times cites an internal memo from BP Solar’s CEO:

The continuing global economic challenges have significantly impacted the solar industry, making it difficult to sustain long-term returns for the company.

A company spokesperson confirmed the closure, “Over the last six months we have realised that we simply can’t make any money from solar.” Falling prices for solar panels have killed a business that BP has operated for 40 years.

On the same day, a solar industry group called the Coalition for Affordable Solar Energy (CASE) has released a letter to the CEO of Germany’s Solarworld US operations urging the company to withdraw a suit filed with the US International Trade Commission seeking tariff protection on solar panels imported from China. The letter states, that the suit “threatens the planned installation of solar electric power systems in the amount of $11 billion in 2012 and the potential installation of $60 billion currently in the total pipeline.”

The letter goes on to note:

SolarWorld’s petition will do far more damage than good to the U.S. solar industry as a whole. CASE’s membership is representative of 97-98% of America’s solar industry, as the large majority of all U.S. solar industry jobs are downstream of solar panel manufacturing in project development, logistics, construction and installation.

Solar panel makers, even including low-cost Chinese providers, are staggering under collapsing prices, while solar installers, like those that are members of CASE, are getting a big boost from the low prices for solar panels. More than 100,000 Americans are currently employed installing solar projects from rooftops to utility-scale. Solar manufacturing probably accounts for fewer than 5,000 US jobs, not counting workers in US owned factories overseas.

It should be no surprise that BP has finally decided to get out completely.

Paul Ausick

First Solar lowered 2011 sales from $3-$3.3 billion to $2.8-$2.9 billion and cut its profit estimate from $6.50-$7.50/share to $5.75-$6.00/share. The company attributed the drops to “continued delays of certain projects in First Solar’s systems business due to weather and other factors.”

One of those other factors has got to be the explosion of manufacturing capacity for solar PV panels and the concomitant drop in panel pricing. Another is the looming expiration of a tax grant program in the US, which threatens to curb new projects going forward.

For 2012, First Solar guided revenue of $3.7-$4 billion, lower than a consensus estimate of $4.06 billion. The company estimates EPS of $3.75-$4.25, where analysts have been projecting EPS of $7.46.

First Solar also says it is altering its business model, according to the company’s CEO:

[W]e are recalibrating our business to focus on building and serving sustainable markets rather than pursuing subsidized markets. By channeling our core strength in utility-scale PV systems to markets with immediate need for mass-scale renewable energy our goal is to earn substantially all of our new revenues from sustainable markets by the end of 2014.

What he means is that rather than aim at large utility-scale projects that look set to lose their federal incentives, First Solar is going to go after the residential and commercial rooftop solar installation market. That market has finally discovered a financing scheme that does not depend on subsidies, relying instead on bank financing and power purchase agreements for profits.

Whether or not First Solar can make this transition remains to be seen. To help the process along, the company has appointed a new president of global business development. There’s also a shakeup in First Solar’s finance team, where the chief accounting officer will be leaving on May 1st.

First Solar shares are getting pounded this morning, down nearly -21% at $33.72, a new 52-week low.

Paul Ausick

The ITC bulletin noted that it has “made affirmative determinations in its five-year (sunset) reviews concerning Crystalline Silicon Photovoltaic Cells and Modules from China.  The USITC vote noted “Preliminary phase antidumping and countervailing duty investigations: Crystalline Silicon Photovoltaic Cells and Modules from China, Inv. Nos. 701-TA-481 and 731-TA-1190 (Preliminary)” today as the ITC sees threat or injury to U.S. solar firms from Chinese companies.

Seven US solar PV makers jointly filed the claim, but only the US unit of Germany’s SolarWorld was identified. Top US solar makers First Solar Inc. (NASDAQ: FSLR) and SunPower Corp. (NASDAQ: SPWRA) are not among the companies that signed on and no specific Chinese makers were identified in the complaint.

Leading makers like Trina Solar Ltd. (NYSE: TSL), JA Solar Holdings Co. Ltd. (NASDAQ: JASO), and LDK Solar Inc. (NYSE: LDK) are surely among the targets.  As far as LDK Solar is concerned, we have noted that this company is mathematically bankrupt without a guarantee from China.

Today’s news is not a registered victory as the outcome (and damage awards) are not yet known, but it is an indication that the U.S. solar players may get some margin stabilization ahead.

JON C. OGG

First Solar posted a 52-week high of $175.45 in mid-February, and the stock is trading around $44 today. The median target price for the stock is $56.00, down from $108.50 on October 24th, a decline of -52%. At today’s target price and today’s share price, the implied upside for First Solar stock is 28%. The company’s forward P/E is 5.84, only a bit less than the 5.97 of a month ago.

SunPower, which has combined its A and B shares into a single issue, has a median target price of $9.00, compared with $13.00 a month ago, a drop of -30%. The stock’s 52-week high is $23.36 and it is trading today at $6.94. At today’s target and share prices, the implied upside for SunPower stock is nearly 30%. The company’s forward P/E is 15.8, compared with 9.28 on October 24th.

LDK Solar has a median target price of $2.60, compared with $5.80 a month ago, for a drop of -55%. The stock’s 52-week high is $14.97 and it’s trading today at $3.40. LDK has already surpassed its new price target, indicating, perhaps, that analysts were too negative in their outlook for the company.

The reason for LDK’s better-than-target price has got to be the belief among investors that the stock has hit bottom and can’t fall any further. That says nothing really about when the stock might turn around its dismal performance permanently.

Unlike LDK, both First Solar and SunPower are both about 30% below their new target prices. But does that indicate a value play or a value trap? Like LDK, the market appears to have called a bottom on these stocks, both of which posted 52-week lows since late October.

In each case, the stock has been beaten down so badly that everything looks like up. There could be an opportunity in First Solar’s stock, as its forward P/E indicates. SunPower appears to be fully valued with a forward P/E of nearly 16.

None of these companies is as bad as its current share prices would indicate, but how long it takes them to recover is a different issue. There’s little expectation that 2012 will be much of an improvement on 2011. For investors willing to wait until 2013 the outlook is better, mainly because next year is expected to see the demise of more solar PV makers. Still, because more than half of all solar panels are made in China, the manner in which the solar market consolidates really remains an unknown.

Paul Ausick

Aetna, Inc. (NYSE: AET) named Bull of the Day at Zacks.
Big Lots Inc. (NYSE: BIG) Cut to Equal-Weight at Barclays.
CIT Group Inc. (NYSE: CIT) Started as Hold at Jefferies.
Focus Media Holding Ltd. (NASDAQ: FMCN) Cut to Neutral at JPMorgan.
Gilead Sciences Inc. (NASDAQ: GILD) Cut to Hold at Argus.
JA Solar Holdings Co., Ltd. (NASDAQ: JASO) Cut to Sell at ThinkEquity.
LDK Solar Co., Ltd. (NYSE: LDK) Cut to Sell at ThinkEquity.
McDermott International (NYSE: MDR) named as Bear of the Day at Zacks.
Micron Technology Inc. (NASDAQ: MU) Raised to Buy at Citigroup.
Senior Housing Properties Trust (NYSE: SNH) Raised to Buy at Stifel Nicolaus.
Veolia Environnement S.A. (NYSE: VE) Raised to Overweight at HSBC.
World Fuel Services Corporation (NYSE: INT) named value stock of the day at Zacks.

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JON C. OGG

The unofficial closing bells put the DJIA down more than 53 points to 11,493.88 (-0.46%), the NASDAQ fell nearly 2 points (-0.07%) to 2,521.28, and the S&P 500 fell about -0.41% or nearly 5 points to 1,188.05.

There were several analyst upgrades and downgrades today, including Microsoft Corp. (NASDAQ: MSFT) started as ‘hold’ at ThinkEquity. Other ratings actions included Gilead Sciences Inc. (NASDAQ: GILD) raised to ‘outperform’ at BMO and raised to buy at Citigroup; Netflix Inc. (NASDAQ: NFLX) re-initiated as ‘sell’ with a $60 price target at Canaccord Genuity; Amgen Inc. (NASDAQ: AMGN) cut to ‘market perform’ at BMO; Wynn Resorts Ltd. (NASDAQ: WYNN) cut to ‘neutral’ at Janney Capital; and Cree Inc. (NASDAQ: CREE) maintained as ‘buy’ with $33 target price at Canaccord Genuity.

Here are today’s big post-earnings news reactions with prices during the last half-hour of trading: LDK Solar Co. Inc. (NYSE: LDK) is up nearly 7.5%, at $3.04; Campbell Soup Co. (NYSE: CPB) is down about -5.6%, at $31.74; Hormel Foods Corp. (NYSE: HRL) is a fraction at $28.82; Suntech Power Holdings Co., Ltd. (NYSE: STP) is up more than 17%, at $2.62; and Brocade Communications Systems, Inc. (NASDAQ: BRCD) is up more than 13%, at $5.08.

Be sure to check our story on the dismal showing of the Chinese solar stocks and then try to figure out why LDK and STP shares are up today. Investors have got to believe the stocks have hit bottom. Perhaps, but LDK is pretty shaky, regardless of investors’ hopes.

Several other standouts from today are as follows…

Frontline Ltd. (NYSE: FRO) is down nearly -41%, at $3.07, after posting a new 52-week low of $2.97 earlier today. The company reported awful earnings and said that it would either need to restructure or go out of business.

Alcatel-Lucent (NYSE: ALU) is down nearly -15%, at $1.59, a penny more than a new 52-week low set earlier today. The company is dogged by liquidity and cash flow concerns.

Groupon, Inc. (NASDAQ: GRPN) is down nearly -13.5%, at $20.40, after posting a new post-IPO low of $20.03 earlier today. Apparently investors have figured out that there are other companies competing hard in the same space and that there are few barriers to keep more competitors out.

Focus Media Holding Ltd. (NASDAQ: FMCN) is up more than 15%, at $17.80. The company was torched yesterday by allegations of mis-statements related its reporting. The CEO disputed yesterday’s allegations in a conference call today, and reiterated the company’s intention to continue buying back shares.

Royale Energy Inc. (NASDAQ: ROYL) is up nearly 12%, at $3.27. The company announced a new gas well flowing at 3 million cubic feet/day and said that it would begin selling the gas within 2 weeks.

Stay tuned for Wednesday. Here’s a list of other noteworthy events scheduled for tomorrow(all times Eastern):

• 7:00 a.m. – Mortgage Bankers Association purchase applications
• 8:30 a.m. – Durable goods orders
• 8:30 a.m. – Initial unemployment benefits claims
• 9:55 a.m. – Reuters/University of Michigan consumer sentiment index
• 10:30 a.m. – EIA weekly natural gas status report (moved up from Thursday)
• 11:00 a.m – EIA weekly petroleum status report

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Paul Ausick

Here’s what the CEO had to say in the earnings release: Weak market demand and rapidly declining average selling prices throughout the solar supply chain resulted in shipment volumes and revenues lower than what we previously anticipated. While we continue to believe that the significant opportunities to meet global energy needs with solar power will drive long-term market growth, in the near-term we expect challenging conditions in the solar industry to continue.  As such, we remain focused on strengthening our balance sheet, increasing our operating efficiencies and improving our cost structure.

How exactly does the company plan to strengthen its balance sheet? To increase its operating efficiency, it probably needs to fire people. That won’t go down well. Cutting production might not help either.  How it can improve its cost structure is equally mysterious, given that prices for solar modules continue to decline.

However the company does have a potential ace in the hole. Last September, LDK received a loan package worth $8.9 billion from China Development Bank (CDB) to be used for “long-term growth initiatives and corporate development plans.” LDK was one of several solar and wind-turbine makers to receive a total of $47 billion in what are essentially credit lines from the CDB. According to a recent report from Bloomberg, LDK has drawn on none of that line of credit, although solar makers Yingli Green Energy Holding Co. Ltd. (NYSE: YGE), Suntech Power Holdings Co. Ltd. (NYSE: STP), Trina Solar Ltd. (NYSE: TSL), JA Solar Holdings Co. Ltd. (NASDAQ: JASO), and wind-turbine maker Xinjiang Goldwind have drawn just $866 million to date.

Under the terms of the CDB’s credit lines, a company needs to apply for a loan for a specific project, and the intention when the lines were approved was certainly to grow manufacturing capacity. Interest rates were also high — more than 6.5% according to the Bloomberg report.

At one time, it might have been conceivable that LDK would apply for a loan for what are known as “general corporate purposes” to get it through this rough patch. But given the recent trade case filing against China’s solar makers by a group of US solar makers, if the CDB goes ahead with such a loan, the US solar makers would certainly scream and the US Trade Representative could easily rule in their favor.

China would probably like to avoid that in a perfect world and LDK could in theory be put in the position of taking one for the team. That is, the CDB and the government would let LDK fail just to show that there is nothing funny going on in the country’s solar industry. One possible way for China to dodge either an outright bailout or a bankruptcy of one of its showpiece companies would be to lend money to one of LDK’s competitors for the purpose of acquiring LDK. How or even if those funds would show up on the acquiring company’s balance sheet is anyone’s guess.

LDK’s market cap is currently around $400 million, long-term debt totals about $980 million, and shareholder equity is around $1.2 billion. Under any bankruptcy or reorganization scenario — except the improbable one of LDK pulling out of this mess on its own – shareholders would likely receive nothing.

We do want to stress one thing here and that is that with this being effectively under China it may not ever come about that the company is really forced to file for bankruptcy.  Many companies, even in America, manage to avoid filing for bankruptcy for years and years when they are mathematically bankrupt or insolvent.  Asensio used to blast LDK but we have not heard much from him of late.  Strange things happen in China, and solar “finances” do not avoid that characteristic.

Paul Ausick

Six Chinese solar makers reported earnings after markets closed last night and before they opened again this morning: Suntech Power Holdings Co. Ltd. (NYSE: STP), LDK Solar Co. Ltd. (NYSE: LDK), Canadian Solar Inc. (NASDAQ: CSIQ), Trina Solar Ltd. (NYSE: TSL), JA Solar Holdings Co. Ltd. (NASDAQ: JASO), and JinkoSolar Holding Solar Co. Ltd. (NYSE: JKS). Every one of the six performed much worse than already poor expectations. Here’s the litany of third-quarter failure:

Suntech posted an EPS loss of -$0.64 on revenue of $810 million. The consensus estimate called for an EPS loss of -$0.64 on revenue of $776 million. Gross margin was 13.3% in the quarter, and the company expects that to fall to a range of 9%-11% in the fourth quarter. The company lowered its full-year shipment guidance from 2,200 megawatts to 2,000 megawatts.

LDK Solar posted an EPS loss of -$0.87 on revenue of $472 million. The consensus estimate called for an EPS loss of -$0.46 on revenue of $515 million. Gross margin was -3.6% in the quarter, and the company expects that to rise to 2%-7% in the fourth quarter. The company lowered full-year module shipment guidance from 750-850 megawatts to 55–65 megawatts. LDK also revised wafer and ingot shipments downward.

Canadian Solar posted an EPS loss of -$1.02 on revenue of $500 million. The consensus estimate called for an EPS loss of -$0.39 on revenue of $497 million. Gross margin was 2.4% in the quarter, and the company expects that to rise to 5%-8% in the fourth quarter. The company reiterated its full-year shipment guidance of 1,200-1,300 megawatts.

Trina Solar posted an EPS loss of -$0.45 on revenue of $482 million. The consensus estimate called for an EPS loss of -$0.09 on revenue of $440 million. Gross margin was 10.8%, and the company expects gross margin of about 10% in the fourth quarter. The company lowered its full-year shipment guidance from 1,750-1,800 megawatts to 1,400 megawatts.

JA Solar posted an EPS loss of -$0.36 on revenue of $388 million. The consensus estimate called for an EPS loss of -$0.01 on revenue of $379 million. Gross margin was -4.3%, and the company did not provide an estimate for fourth quarter gross margin. The company reduced its full-year shipment guidance from 1,800 megawatts to 1,600 megawatts.

JinkoSolar posted an EPS loss of -$0.47 on revenue of $279 million. The consensus estimate called for EPS of $0.18 on revenue of $272 million. Gross margin was 3.7%, and the company did not provide an estimate for fourth quarter gross margin. Its project for fourth quarter revenue is $180-$210 million.

To declare today an unmitigated disaster for the Chinese solar makers may be understating the case. The companies that are predicting a higher gross margin the current quarter are probably dreaming, and the two companies that did not offer an estimate of fourth-quarter margins (JA Solar and JinkoSolar) undoubtedly face margins so low that they are embarrassed to discuss them.

There will be blood in the streets from these stocks again this morning. That does not mean that this is a particularly good buying opportunity, however. Failures and consolidations in the Chinese solar PV industry have got to be just around the corner. For the past 12 months, every one of these companies’ share price is down at least -70%.

In this morning’s pre-market, JinkoSolar shares are down the most, -12%, at $5.02 in a 52-week range of $4.55-$32.21. LDK shares are down more than -4.5%, at $2.70, in a 52-week range of $2.55-$14.97. Trina Solar is down nearly -4%, at $5.99, in a 52-week range of $5.28-$31.08. JA Solar is down more than -90%, to $1.38, a new 52-week low if it holds. JA Solar’s current 52-week range is $1.46-$8.57. Canadian Solar is down about -4.5%, at $2.10, also a potential nerw 52-week low. The company’s current range is $2.16-$16.79. Suntech shares have not moved yet this morning.

Paul Ausick