SolarCity, which does not manufacture solar PV cells or modules but only installs systems, has an agreement to purchase panels from First Solar Inc. (NASDAQ: FSLR) and has also used panels made by Suntech Power Holdings Co. Ltd. (NYSE: STP), Yingli Green Energy Holding Co. Ltd. (NYSE: YGE), Kyocera Corp. (NYSE: KYO), Sharp, and thin-film start-up Miasole. The company competes directly with installers Real Goods Solar Inc. (NASDAQ: RSOL) and Westinghouse Solar Inc. (NASDAQ: WEST).

SolarCity has a contract worth about $1 billion to install solar PV systems on military housing, and the company has been able to get financing for its installations by repaying loans through lease agreements or power-purchase agreements with homeowners rather than depending on the homeowners to pay for the solar PV systems up front.

The dramatic decrease in solar panel prices last year has pushed the company’s growth, and SolarCity is now the market share leader in solar installations with 14%. Real Goods, which claims 6% of installations, trails in second place, but the company has expanded into the northeast US and is competing harder with SolarCity in states like New Jersey and Maryland.

The outcome of the trade case involving US-based solar PV manufacturers against Chinese competition could be the make-or-break issue in SolarCity’s plans. Solar PV installers like SolarCity and Real Goods probably account for about half the 100,000 US jobs related to solar energy. Solar panel manufacturing probably accounts for fewer than 5,000. A high tariff on Chinese solar panels could decimate the installation business.

Paul Ausick

SolarCity is the largest solar installer in the US, with about 14% of a market worth more than $2 billion. The company does not reveal its module suppliers, but did sign a 5-year supply contract with First Solar Inc. (NASDAQ: FSLR) in 2008, and has in the past used modules manufactured by both Suntech Power Holdings Co. Ltd. (NYSE: STP), Yingli Green Energy Holding Co. Ltd. (NYSE: YGE), Kyocera Corp. (NYSE: KYO), Sharp, and thin-film start-up Miasole. Competitors among publicly listed companies are Real Goods Solar Inc. (NASDAQ: RSOL) and Westinghouse Solar Inc. (NASDAQ: WEST), formerly Akeena Solar, which licenses the Westinghouse brand from Toshiba Corp.

SolarCity offers homeowners solar installation with a variety of payment options, but the company’s rapid growth has come from its power-purchase agreements with homeowners who install the rooftop systems and then pay only for the power they use. These projects are financed by loans to SolarCity from the likes of Bank of America Corp. (NYSE: BAC) and Google Inc. (NASDAQ: GOOG) which have backed the program with loans totalling well over $240 million.

The company also offers systems purchasing plans and lease plans for residential and commercial customers. SolarCity also has a major contract with the Department of Defense to install solar systems on military housing units. The company was supposed to receive a federal loan guarantee to partially fund the $1 billion project, but the application was filed too late to be considered by the September 30th deadline. That’s when BofA/Merrill Lynch stepped in with financing.

SolarCity is also on the side of installers who disagree with the dumping case filed by the US division of Germany’s Solarworld AG against Chinese solar panel makers. The falling cost of the solar panels has generated more interest among consumers and commercial customers for installing solar PV systems, which is good for SolarCity, Real Goods, and other installers like Sungevity and SunRun.

SolarCity offers installation services in 11 states and the District of Columbia. And unlike the ill-fated Solyndra, SolarCity’s brand is both well-known and popular.

Paul Ausick

The unofficial closing bells put the DJIA up about 46 points to 12,625.19 (0.37%), the NASDAQ rose more than 18 points (0.67%) to 2,788.33, and the S&P 500 rose 0.5% or more than 6 points to 1,314.52.

There were several analyst upgrades and downgrades today, including Visa Inc. (NYSE: V) started as ‘outperform’ at Credit Suisse; Mastercard Inc. (NYSE: MA) started as ‘outperform’ at Credit Suisse; Citigroup Inc. (NYSE: C) maintained ‘sell’ at Argus; Chevron Corp. (NYSE: CVX) maintained as ‘buy’ with target price of $130 but lowered estimates at Argus; and Air Products and Chemicals Inc. (NYSE: APD) cut to ‘neutral’ at JPMorgan.

Earnings reports since markets closed yesterday have led to some price changes as of the last half hour of trading today: Ebay Inc. (NASDAQ: EBAY) is up nearly 4% at $31.55; Sealy Corp. Inc. (NYSE: ZZ) is down nearly -18% at $1.51; Blackrock Inc. (NYSE: BLK) is down -0.75% at $186.39; Bank of America Corp. (NYSE: BAC) is up 2.65% at $6.98; Fairchild Semiconductor International Inc. (NYSE: FCS) is down -3.51% at $14.02; Freeport-McMoran Copper & Gold Inc. (NYSE: FCX) is down -0.22% at $44.37; Morgan Stanley (NYSE: MS) is up 5.42% at $18.29; and Southwest Airlines Co. (NYSE: LUV) is up 3.33% at $9.32.

Other standouts from today include the following stocks:

8×8 Inc. (NASDAQ: EGHT) is up more than 26% at $4.30. The telecom services company reported much better-than-expected earnings for its third fiscal quarter.

Trina Solar Ltd. (NYSE: TSL) is down more than -15% at $8.32. The solar panel maker is falling following Germany’s announcement that it will begin lowering its solar subsidies.

JA Solar Holdings Co. Ltd. (NASDAQ: JASO) is down nearly -15% at $$1.80. This Chinese solar panel maker is suffering from the German subsidy cut as well.

Suntech Power Holdings Co. Ltd. (NYSE: STP) is down -14% at $3.18. Another Chinese solar maker hit by the cuts to German subsidies. The list could go on, but you get the idea.

Stay tuned for Friday. We have noted the following event on the schedule (all times Eastern):

• 10:00 a.m. – Existing home sales

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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

Rather than chasing market share, solar makers need to hold the line on supply increases, keep inventories under control, and, most important, return to profitability. The CEO of Taiwan’s Giga Solar Materials Corp. told Digitimes that he expects the market for solar panels to improve by the second quarter of the year.

Giga Solar makes the conductive aluminum paste used in solar cell manufacturing, and the company expects sales growth of 10-12% in 2012. Sales of silver paste are expected to post “tremendous growth” this year.

This prediction is based on fourth-quarter 2011 inventory clearing which should restore the supply/demand balance and help stabilize prices. Then production needs to be rationalized.

According to Solarbuzz, total shipments in 2012 need to be reduced by 4,900 megawatts from the industry’s goal of 28,200 megawatts. The industry research firm also notes that year-end inventories are estimated to be around 7,300 megawatts, down from a previous estimate of 8,600 megawatts.

The first calendar quarter of the year is a traditionally tough one for solar makers as the weather makes installations problematic. During the first quarter we could see prices and margins continuing to fall. As the weather improves so should demand, although Germany’s 15% feed-in tariff reduction will like cause a further decline in orders from German buyers.

The report in Digitimes is giving solar stocks a shot in the arm today. Yingli is up more than 8% at $4.11 in a 52-week range of $2.75-$13.59. First Solar shares are up more than 5% at $35.50 in a 52-week range of $29.87-$175.45. Sunpower’s shares are also up more than 5% at $6.56 in a 52-week range of $4.94-$23.36. Suntech shares are up about 3.5% at $2.29 in a 52-week range of $1.70-$10.83. The DJIA is up nearly 2% this morning.

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

The unofficial closing bells put the DJIA up nearly 489 points to 12,044.55 (4.23%), the NASDAQ rose nearly 105 points (4.17%) to 2,620.34, and the S&P 500 rose 4.33% or nearly 52 points to 1,246.94.

There were several analyst upgrades and downgrades today, including Home Depot Inc. (NYSE: HD) reiterated as ‘buy’ with a $46 price target at Argus. Other ratings actions included Green Mountain Coffee Roasters Inc. (NASDAQ: GMCR) reiterated as ‘buy’ with a $94 price target at Canaccord Genuity; Netflix, Inc. (NASDAQ: NFLX) cut to ‘underperform’ at Wedbush; Suntech Power Holdings Co. Ltd. (NYSE: STP) reiterated as ‘hold’ at Argus; Transocean Ltd. (NYSE: RIG) cut to ‘hold’ at Argus; and Calpine Corp. (NYSE: CPN) cut to ‘hold’ at Jefferies. See our story on Transocean’s stock offering and proposed debt offering.

Here are today’s big post-earnings news reactions with prices during the last half-hour of trading: American Eagle Outfitters Inc. (NYSE: AEO) is up 3.3%, at $13.87; The Fresh Market, Inc. (NASDAQ: TFM) is up 5.7%, at $38.73; Jos. A. Banks Clothiers, Inc. (NASDAQ: JOSB) is down -6%, at $48.09; and SeaDrill Ltd. (NYSE: SDRL) is up 6.3%, at $34.82. After markets close today, Aeropostale, Inc. (NYSE: ARO) and Krispy Kreme Doughnuts Inc. (NYSE: KKD) will report earnings.

Several other standouts from today are as follows…

Zoltec Companies, Inc. (NASDAQ: ZOLT) is up 41.5%, at $8.11. The advanced materials maker reported better-than-expected earnings after markets closed yesterday.

Advanced Analogics Technologies, Inc. (NASDAQ: AATI) is up 32.5%, at $5.75. The power management chip maker is being acquired by Skyworks Solutions Inc. (NASDAQ: SWKS) for $258.6 million, or about $6.05/share.

Patriot Coal Corp. (NYSE: PCX) is up 18.7%, at $10.30.  This coal miner, like virtually all its competitors, is down about -40% for the past 12 months. There’s no news to justify today’s price jump, but the company’s thermal coal does sell well in cold weather.

Avalon Rare Metals Inc. (AMEX: AVL) is up 20.3%, at $3.26. The rare earths miner made this big move on no news, but competitor Molycorp Inc. (NYSE: MCP) did a deal with two Japanese companies to manufacture very powerful magnets in Japan for use in wind turbines and other high-tech products.

JA Solar Holdings Co. Ltd. (NASDAQ: JASO) is up 16.6%, at $1.80. The solar PV maker is among several Chinese solar companies moving up today, no doubt as these are considered the most likely to survive a shakeout in the solar manufacturing sector.

Shutterfly, Inc. (NASDAQ: SFLY) is down -12%, at $27.02, after posting a new 52-week low of $26.93 earlier today. The social media company is facing intense competition for its on-line photo products.

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

• 8:30 a.m. – New unemployment claims
• 9:45 a.m. – Bloomberg consumer comfort index
• 10:00 a.m – Industrial Supply Management manufacturing index
• 10:30 a.m. – EIA natural gas weekly report
• 4:30 p.m. – Federal Reserve balance sheet
• 4:30 p.m. – Money supply report

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AMR Corporation (NYSE: AMR) Cut to Sell at Citigroup.
Cabela’s, Inc. (NYSE: CAB) named as Bull of the Day at Zacks.
Calpine Corporation (NYSE: CPN) Cut to Hold at Jefferies.
Electronic Arts Inc. (NASDAQ: ERTS) Raised to Buy at Citigroup.
Goodyear Tire & Rubber Company (NYSE: GT) named as value stock of the day at Zacks.
Green Mountain Coffee Roasters Inc. (NASDAQ: GMCR) Reiterated Buy with $94 target at Canaccord Genuity.
Home Depot Inc. (NYSE: HD) Reiterated Buy with $46 target at Argus.
Leap Wireless International Inc. (NASDAQ: LEAP) Raised to Outperform at RBC Capital.
Navistar International Corporation (NYSE: NAV) Raised to Neutral at Goldman Sachs.
Netflix, Inc. (NASDAQ: NFLX) Cut to Underperform at Wedbush.
New Oriental Education & Technology Group (NYSE: EDU) Started as Outperform at Credit Suisse.
Nomura Holdings, Inc. (NYSE: NMR) Started as Neutral at Credit Suisse.
OmniVision Technologies Inc. (NASDAQ: OVTI) maintained Buy on valuation but cut target to $12 at Canaccord Genuity. 
Suntech Power Holdings Co. Ltd (NYSE: STP) Reiterated Hold at Argus.
Transocean Ltd. Co. (NYSE: RIG) Cut to Hold at Argus.
Willis Group Holdings, Plc (NYSE: WSH) named as Bear 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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