Many solar stocks are likely experiencing rapid short covering.  Sticking around for the lowest prices after serious success is a sucker’s game.  There may also be a political angle here now that President Obama’s poll numbers are looking a bit better.  The problem is that it is going to take more now than a President with a continued favorable stance to alternative energy.  The fundamentals remain weak and now investors are getting to evaluate whether there is any value of if they are value traps.  Take a look at some of the moves…

First Solar, Inc. (NASDAQ: FSLR) is up 7.5% at $49.29 against a 52-week range of $42.50 to $175.45.  The most recent short interest data showed that the short interest was 18 million shares and that was actually down from most reports in the fourth quarter of 2011

SunPower Corporation (NASDAQ: SPWR) is up over 13% at $8.53 today against a 52-week range of $4.94 to $23.36. The most recent short interest data showed that the short interest was 5.7 million shares, down from a November peak of 9.3 million shares and much lower than the 11.7 million shares short back at the end of June.

Energy Conversion Devices, Inc. (NASDAQ: ENER) is even up 12% to $1.29 and no longer at much of a delisting risk.  Its 52-week range is $0.20 to $4.29. The most recent short interest data showed that the short interest was 11.4 million shares at the lowest levels in a year since it had become a penny stock.

Trina Solar Limited (NYSE: TSL), out of China, is up a whopping 24% at $11.44 against a 52-week range of $5.28 to $31.08.  That makes for a gain of 70% so far in 2011 and it would have to almost rise 200% to challenge its year-high. The most recent short interest data showed that the short interest was 15.5 million shares.

MEMC Electronic Materials, Inc. (NYSE: WFR) is also up 8% at $5.78 against a 52-week range of $3.65 to $15.04.  That gives a gain of almost 47% so far in 2012.  The most recent short interest data showed that the short interest was 14.5 million shares and that was actually higher than at the end of 2011 even if it is lower than prior months.

JON C. OGG

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

Don’t bother telling the solar woes to Google Inc. (NASDAQ: GOOG) and to KKR & Co. L.P. (NYSE: KKR).  The two companies announced that they would invest a total of $189 million on a combined basis domestically in solar facilities.  Some $94 million will be invested by Google to fund four California solar farms which are being constructed near Sacramento.  KKR’s $95 million investment is said to include new unannounced projects as well as the  Sacramento projects.  Sharp Corporation’s Recurrent Energy is selling the existing projects.

It is easy to bash solar stocks right now because their losses have been beyond what most could conceive.  Still, Warren Buffet’s MidAmerican Energy under Berkshire Hathaway Inc. (NYSE: BRK-A), NRG Energy Inc. (NYSE: NRG), and others have continued to invest.  What is interesting is that it is currently one of the best times to invest in solar projects, as long as your financial lifeline is not dependent upon the margins of manufacturing the solar panels.

First Solar Inc. (NASDAQ: FSLR) might be building a large Arizona desert solar farm but the company has proven that it is far from immune to the woes of the sector.  Whether or not the mandated California utility one-third renewable goal by 2020 can help is so far not helping these companies out.

The good news for solar power buyers is that there are still some financial incentives and panel prices have tanked.  Europe is in austerity-hell that is keeping its solar ambitions lower and China has been flooding the market with cheap solar panels (are those knock-off solar panels?).

Google’s side-bar projects do not have to have the same return as its search business, but the Internet search giant has now committed close to $1 billion into various forms of clean energy investing.  Roughly half appears to be in solar of some sort.

To show just how brutal the solar investing has been, take a look at the two key solar ETF products.  The TAN Guggenheim Solar ETF (NYSE: TAN) trades at $2.71 and the 52-week trading range is $2.54 to $9.16; and the Market Vectors Solar Energy ETF (NYSE: KWT) trades at $3.89 versus a 52-week range is $3.64 to $14.33.

JON C. OGG

The U.S. solar leader reported earnings of $2.25 EPS on revenues of $1.01 billion but the lower figures appear to be good enough now that the shares have been battered and bruised this much.  Thomson Reuters had estimates at $2.64 EPS and $1.01 billion in revenues.

First Solar guided 2011 results to $6.50 to $7.50 EPS and it is effectively lowering fourth quarter sales targets because the revenue target for the year is now being put in a range of $3.0 to $3.3 billion.  Thomson Reuters had consensus estimates at $8.84 EPS and $3.59 billion in revenues.  So, that about 6-times to 8-times this year’s earnings.

This all implies a lower 2012, which we have already reported on numerous times, and the company is going to slow down its capital spending plans in 2012 to protect margins.

This is bad news about the guidance, but all that needs to be remembered that this was a $70 as recently as the end of September and was a $100 stock as recently as the end of August.  Shares closed at $43.27 yesterday but shares are indicated up 8% at $46.80 this morning.

When the CEO left yesterday there was an obvious fear.  We did not want to contribute to the rumor mill, but the most obvious fear was likely some serious irregularities or perhaps something even worse.  Again, we did not (and do not) want to speculate too much even if the company did the worst “CEO exit” in some time.

Rivals are not really on the move at the same rate.  SunPower Corporation (NASDAQ: SPWRA) is barely up at all and it is still under $10.00.  Suntech Power Holdings Co. Ltd. (NYSE: STP) is up over 5% at $2.36.  No move has yet been seen in Guggenheim Solar (NYSE: TAN) ETF either.

JON C. OGG

It was just last week that Jim Cramer kicked First Solar right in the teeth by bashing it on CNBC’s Mad Money after Ticonderoga Securities cut its rating to “Sell” from an already cautious “Neutral” rating..  With more than half of its last year’s sales coming from Europe, what is the hope that the Europeans can bail out and recapitalize their banks while maintaining all of these solar subsidies?  It depends upon whom you ask.

Today’s downgrade came from S&P Capital IQ with the rating cut to “Hold” from “Buy” in the call.

Zacks recently issued a report on Suntech Power Holdings Company Ltd. (NYSE: STP) with nothing more than a “Hold” rating and highlighted that it was a thorn in the side of First Solar Inc. (NASDAQ: FSLR).

To show just how bad this has been for the sector, the Guggenheim Solar (NYSE: TAN) ETF closed down almost 5% at $3.32 today and the 52-week range is $2.84 to $9.27.

The big problem remains a simple one… With all of the austerity, and now the scrutiny of solar loan guarantees on top of it, the general belief is that margins will continue to compress and that implies that no one believes that the “E” will be reached in the “P/E.”  These are classic value traps rather than value stocks, or at least that is what the trading tape is telling you.

First Solar shares hit a 52-week low yet again today of $52.32 versus a 52-week high of $175.45 and shares closed down 5.8% at $52.96 for the day.

JON C. OGG

Among the problems cited are the Solyndra blow-up, even though the Exelon (NYSE: EXC) business should be assured. Two issues Cramer cited were that Germany was something to the tune of 46% of 2010 business and France was another 14%. Cramer noted that these countries may be far less able to continue subsidizing solar panels when they have to recapitalize the banks.

We have dug around on our own this year trying to get the percentages of the current business and Europe does actually seem to be less than it was in 2010. The problem is that it is still massive and we have been unable to come up with any hopeful scenario that makes it look like First Solar can recapture its former glory.

About all that investors can hope for is that insider buying hit the tape on Thursday evening but that may be from shares surrendered and with options. The prior insiders buying shares has done nothing, other than generate losses for the insiders.

We would also bring up yet another dogging of First Solar that took place this week: Ticonderoga Securities cut the official First Solar rating down to SELL from an already cautious Neutral rating. The new price target assigned was $40.00.

We also cannot help but worry about the expanded Congressional inquiry is expanding to First Solar and SunPower (NASDAQ: SPWRA) as republicans are requesting loan guarantee details.

All investors can hope for here is that Jim Cramer being negative and that the other issues have been priced into the stock and then some. It is way too early in the alternative energy cycle for solar companies to try to sell themselves as value stocks. It used to be that solar stocks went up when oil went up, and that was why we have called solar stocks nothing more than leveraged bets on oil. Unfortunately, solar goes down when the price of oil goes up or down now.

If First Solar can meet its 2010 earnings estimates, it barely trades at 5-times expected earnings. At issue is that no one wants to believe the “E” in the P/E ratio in First Solar and the rest of the solar sector. This is a classic case of where value stocks become value traps.

First Solar closed down 0.4% at $56.85 and the 52-week trading range is $53.05 to $175.45. Shares were indicated down another 1% or so in the after-hours trading session.

Guggenheim Solar (NYSE: TAN) is the pure play solar and it actually closed up over 1% at $3.46, but to show just how bad the carnage is the 52-week trading range is $2.84 to $9.34.

JON C. OGG

The poster child for the solar sector has long been First Solar Inc. (NASDAQ: FSLR), which posted a 52-week high of $175.45 in February. SunPower Corp. (NASDAQ: SPWRA) posted its 52-week high when French energy company Total SA (NYSE: TOT) acquired 60% of SunPower’s stock at a substantial premium. Like First Solar, Chinese solar PV makers Suntech Power Holdings Co. Ltd. (NYSE: STP), JA Solar Holdings, Co. Ltd. (NASDAQ: JASO), Trina Solar Ltd. (NYSE: TSL), and LDK Solar Co. Inc. (NYSE: LDK) posted yearly highs in February.

As panel prices continue to decline, inventories continue to build as orders from Europe continue to slide. A year ago European markets accounted for 78% of global demand for modules in the third quarter; this year the Europeans accounted for an estimated 58% of demand. Demand in China and the US has grown, but not fast enough to make up the difference. As a result, module prices are now down to about $1.09/watt for crystalline solar-based modules.

First Solar’s share price hit a 52-week low of $55.68 before recovering to nearly $65, but the story is in the valuation of the company. The earnings multiple for the trailing 12 months is 10.75, and the forward multiple is 5.94. SunPower’s trailing P/E ratio is near 30, while its forward P/E ratio is 6.63. Suntech’s trailing P/E is a mere 2.85 and its forward P/E is 7.94. JA Solar’s trailing P/E is a minuscule 1.38, and its forward P/E is 3.72. Trina’s trailing P/E is 2.14 and its forward estimate is 5.02. LDK’s trailing P/E is 1.67 and its forward P/E is 7.12.

As investors have re-set their growth expectations for the solar makers, share prices and earnings estimates have tumbled. It had to happen some day, but the punishment seems excessive. It’s as if investors are crushing the shares now because they couldn’t bear to believe the projections on over-supply that started coming out last year.

For the just-ended quarter, the consensus EPS estimate for First Solar have dropped from $2.85 three months ago to $2.68. The EPS estimate for SunPower has dropped from $0.39 to $0.08. Suntech’s EPS estimate has fallen from $0.21 to a loss of -$0.18, while JA Solar’s earnings estimate declined from $0.22 to $0.05. The EPS estimate for Trina has fallen from $0.89 to $0.32 and the estimate for LDK has dropped from $0.40 to an EPS loss of -$0.09.

LDK and Trina have been hit with some accounting issues, and JA Solar and Suntech have overbuilt capacity. Sunpower’s share price was boosted by Total’s investment, not on anything organic to Sunpower’s operations.
Only First Solar has stayed close to its EPS estimates of three months ago. The estimate is down by about -6% while the share price has dropped by nearly -50%. That seems like a bit of overkill.

First Solar appears to be getting punished for being the best house in a bad neighborhood. SunPower’s rise had little to do with its operations, so its fall is less surprising. The low-cost Chinese makers made their choice to expand a year ago and couple with their accounting issues probably deserve the black eye they’re getting now.

An hour before noon today, these stocks are getting a little boost from the overall rise in the markets today. First Solar shares are up about 2.5%, to $62.35 in a 52-week range of $55.68-$175.45. SunPower’s shares are up more than 1%, at $7.87, in a 52-week range of $6.60-$23.36. Suntech’s shares are up more than 3%, at $2.46, in a 52-week range of $1.70-$10.83. JA Solar shares are up about 0.5%, at $1.90, in a 52-week range of $1.46-$10.24. Trina’s shares are up more than 4.5%, to $7.88, in a 52-week range of $5.28-$31.89. LDK’s shares are up more than 3.5%, to $3.42, in a 52-week range of $2.55-$15.10. The Guggenheim Solar ETF (NYSE: TAN) is also up about 1.85%, at $3.29, in a 52-week range of $2.84-$9.34.

Paul Ausick

The infusion highlights the discrepancy between non-Chinese solar when it comes to government support for the solar industry. China has determined that building a world-class solar industry is a strategic imperative and coughed up nearly $30 billion in loans last year to its leading solar panel makers. Trina Solar Ltd. (NYSE: TSL) received $4.4 billion, Suntech Power Holdings Co. Ltd. (NYSE: STP) received $7.3 billion, JA Solar Holdings Co. Ltd. (NASDAQ: JASO) received $4.4 billion, Yingli Green Energy Holding Co. Ltd. (NYSE: YGE) received %5.3 billion, and LDK Solar Co. Ltd. (NYSE: LDK) received $8.9 billion. Most of these funds were directed at expanding manufacturing capacity as a way to drive down costs.

The recent bankruptcies of Solyndra LLC and SpectraWatt, Inc. in the US, plus the decision by Germany’s SolarWorld to shutter its US manufacturing stand in stark contrast to the beneficence of the Chinese government. The Chinese loans come with extremely low interest rates, and although they are supposed to be paid back, it is not unheard of for the government to cover losses.

The low-cost Chinese loans do tilt the playing field in favor of the Chinese solar industry, and competitors don’t much like it. But even the generous loans can’t make up for the problems that some of the Chinese firms have faced this year.

Suntech shares, for example, have fallen from a high near $11/share to below $5/share and LDK shares have fallen from a high over $15/share to below $5/share. Price erosion is the culprit, as module prices have fallen more than 40% during 2011.

But that has not stopped China from investing billions in expanding manufacturing capacity in an effort to get ahead of the falling prices by growing production. Companies such as First Solar Inc. (NASDAQ: FSLR) and SunPower Corp. (NASDAQ: SPWRA) do not have access to equally attractive loans and are faced with trying either to keep up with capacity increases or driving down costs in order to remain competitive.

Even technological superiority can’t make up the difference in cost, although First Solar’s thin-film technology remains the low-cost leader. Crystalline silicon module prices continue to fall and threaten to flood the market with enough modules to increase pricing pressure even more.

In the first hour of trading this morning, Suntech’s shares are up about 1.5%, at $4.68, after setting an all-time low on Friday. The 52-week range is $4.60-$10.64. LDK shares are off almost -6.5%, at $4.96, after being downgraded from ‘Hold’ to ‘Sell’ at Argus. The 52-week range is $4.65-$15.10. First Solar shares are off nearly -3.5%, at $86.94, after posting a new 52-week low this morning. The 52-week range is $86.73-$175.45. SunPower shares are down more than -3%, at $12.36, in a 52-week range of $11.20-$23.36. The Guggenheim Solar ETF (NYSE: TAN) is down almost -5%, at $4.77, a new 52-week low. The 52-week range is $4.77-$9.34.

Paul Ausick

Revenue for the quarter came in at the high end of the company’s last revision, at $499.4 million, down from $766.3 million in the same period a year ago and down from $565.3 million sequentially. The inventory write-down totaled $52.9 million, somewhat better than the predicted high of $60 million. The loss per diluted ADS came in a -$0.62, compared to a profit of $0.95 per ADS in the first quarter and a profit of $0.36 in the year-ago second quarter. Thomson Reuters expected a per ADS loss of -$0.33.

Gross margins for the quarter were 2.2%, compared with 31.5% in the first quarter and 18% in the second quarter of 2010. Operating margin was negative, -9.6%, comparative with an operating margin of 25.6% in the first quarter and 13.9% a year ago.

Not to worry, though. LDK believes the third quarter will improve and that the full fiscal year will come in at the numbers it forecast earlier this month. The company is forecasting full year gross margins of 15%-20% because it believes that prices are beginning to stabilize and its “order pattern” is improving.

If LDK is getting more orders, and if prices are stabilizing, how can gross margin go up? If prices are in fact stablizing, they’re doing so a a far lower rate than before. And it’s arguable that prices are stabilizing at all. For example, Harbor Freight Tools, is selling a 45-watt panel assembly for just $149.99, down from $249. A 240-watt solar panel from Trina Solar Ltd. (NYSE: TSL) is available for $1.81/watt at retail. Assuming a standard retail markup, that means that the average selling price for Trina is less than $1/watt. There’s no way LDK is making more than that. And there’s very little chance that the price direction is up, no matter what LDK thinks.

Analysts have pounded LDK this morning as well. Kaufman Brothers have maintained a ‘hold’ rating on the shares, but lowered their price target from $6/share to $5/share. Wells Fargo has downgraded shares from ‘Market Perform’ to ‘Underperform’. Zacks Investment Research has also lowered its rating from ‘neutral’ to ‘underperform’.

One way to stop the slide in margins is for the industry to consolidate.  Another is bankruptcy — Evergreen Solar is gone and Germany’s Q-Cells may be next. Whether consolidation will help depends on how the many Chinese solar makers sort themselves out. If LDK and Trina and the others begin to merge, that could reshape the industry. If not, the weaker companies will slowly bleed to death.

LDK’s ADRs are down only about -2% so far this morning, at $6.04, in a 52-week range of $4.65-$15.10. With well over 30 million shares listed in the short interest, maybe bad news is not so bad.

Trina shares closed yesterday at $16.23, in a 52-week range of $12.51-$31.89, and haven’t moved in the pre-market. The Guggenheim Solar ETF (NYSE: TAN) closed yesterday at $5.52, in a 52-week range of $4.82-$9.34, and hasn’t moved this morning.

Paul Ausick

Riding the coattails are First Solar Inc. (NASDAQ: FSLR), LDK Solar Co. Ltd. (NYSE: LDK), Trina Solar Ltd. (NYSE: TSL), SunPower Corp. (NASDAQ: SPWRA), and ReneSola Ltd. (NYSE: SOL). Missing out on the fun is JA Solar Holdings Co. Ltd. (NASDAQ: JASO), which reported negative operating margins last week. The other solar stocks suffered, but JA Solar is in a class by itself.

Yingli’s second quarter report last Friday showed shipments up by 37% sequentially, with revenue up 27% year-over-year and EPS of $0.34. Gross margins fell from 27.3% to 22% sequentially and by more than 33% year-over-year. Suntech this morning reported an adjusted EPS loss of -$0.19 on a 33% rise in revenue and adjusted gross margins of 15.1%, down from 19.7% a year ago.

Both companies predict that shipments will either be inline with previous forecasts (Yingli) or increase by 15% in the third quarter (Suntech). Suntech also reported an increase of shipments by 48% year-over-year and 2% sequentially in the second quarter.

All those new shipments from Suntech will further lower margins, to a newly forecast level of 11%-13%. Yingli said nothing about its margins for the rest of the year, but did re-iterate its shipment forecast for the fiscal year at 60%-65% higher than the 2010 fiscal year.

Suntech, which is the world’s largest maker of solar panels, can afford to ship more at lower margins simply because it ships so many panels. Yingli, a more vertically integrated supplier, is able to withstand some of the pricing pressure on rising module volumes.

First Solar, the world’s low-cost provider, is able to withstand the pricing pressure as well, but it’s margins are taking a beating as the silicon-based Chinese suppliers continue to lower their costs.

The story on margins is that they will continue to fall for everyone. Only those companies that can withstand the margin pressure will remain standing. This is putting some energy in the solar stocks today because investors believe the gainers will survive. But there are still too many solar players for all of them to make it, especially as manufacturing capacity continues to grow. Today’s boost is likely to be short-lived.

In the late morning today, Suntech shares are up more than 3%, to $5.26, in a 52-week range of $5.10-$10.83. Suntech shares posted that 52-week low last Friday. Yingli shares are up nearly 6%, to $5.57, in a 52-week range of $5.00-$14.29. First Solar shares are up about 1.5%, at $90.06, in a 52-week range of $87.82-$175.45. LDK shares are up about 1.5% as well, at $5.14, in a 52-week range of $4.65-$15.10.

JA Solar shares are getting another beating today, down more than -5% at $3.30, barely within the 52-week range of $3.28-$10.24. The Guggenheim Solar ETF (NYSE: TAN) is up about 0.8%, at $4.92, again just a few pennies inside the 52-week range of $4.88-$9.34.

Paul Ausick