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

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

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

After the first half hour of trading this morning, Orchard Supply is up 56% at $39.00. The home improvement store, formerly part of Sears Holdings Corp. (NASDAQ: SHLD), held its IPO this morning at $25/share. Trading has been light, with less than 5,000 shares trading hands following the initial offering.

Rambus is up more than 10% at $8.32. Volume is heavy, with about 25% of the daily average already having been traded. The semiconductor intellectual property company has raised its revenue guidance from $66-$71 million to $83 million for the quarter ended in December.

Yingli Green Energy is up nearly 10% at $4.17. Volume is fairly heavy, with about 20% of the daily average already traded. The solar PV maker is getting a bounce from news stories projecting a better quarter for solar makers.

Aveo is down nearly -14% at $14.84. Volume is already 4x the daily average. The pharmaceutical maker reported that its liver cancer drug performed better than a competitor in late-stage trials, but investors were expecting a larger improvement.

James River is up more than 9% at $7.56. Volume is heavy, with 35% of the daily average already having been traded. The coal miner has been undervalued according to some analysts, who expect coal miners to perform well in 2012 compared with alternative energy sources.

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

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

There were several analyst upgrades and downgrades today, including the addition of Aetna, Inc. (NYSE: AET) to Goldman Sachs’ Conviction Buy list. Goldman also raised Amerigroup Corp. (NYSE: AGP) to ‘buy’. JB Hunt Transport Services Inc. (NASDAQ: JBHT) cut to ‘hold’ at Stifel Nicolaus; Sandisk Corp. (NASDAQ: SNDK) cut to ‘neutral’ at Sterne Agee; Weyerhaeuser Corp. (NYSE: WY) raised to ‘hold’ at Deutsche Bank; Salesforce.com (NYSE: CRM) cut to ‘equal-weight’ at Global Equities Research; and Safeway Inc. (NYSE: SWY) started at ‘neutral’ by JP Morgan.Here are today’s big post-earnings news reactions with prices during the last half-hour of trading: Shaw Group (NYSE: SHAW) up nearly 5.5%, at $23.39; Loews Corp. (NYSE: L) is down about -3%, at $40.07; Identive Group Inc. (NASDAQ: INVE) is down more than -6.5%, at $2.37; and Humana, Inc. (NYSE: HUM) is up more than 6.5%, at $85.68.

Several other standouts from today are as follows…

Momenta Pharmaceuticals, Inc. (NASDAQ: MNTA) is up more than 22%, at $14.96. The shares jumped following a court ruling that will hamper the introduction of competing drugs.

NuPath Inc. (NASDAQ: PATH) is up more than 15%, at $2.68. The company reported positive results on tests of its patch treatment for migraine headaches.

NPS Pharmaceuticals, Inc. (NASDAQ: NPSP) is down more than 33%, at $5.18. The company said that two patients for its new bowel drug died and another developed cancer.

Yingli Green Energy Holding Co. Ltd. (NYSE: YGE) is down more than -15%, at $4.06. This could well be caused by bit of profit-taking on solar stocks that posted sharp gains on Friday.

Trina Solar Ltd. (NYSE: TSL), another solar maker, is also down about -14%, at $8.04. Just another day in the solar whirlwind.

Gevo, Inc. (NASDAQ: GEVO) is down about -16%, at $7.31. The biofuel maker was refused a re-examination of a patent by the US Patent and Trademark Office.

Stay tuned for Tuesday. A two-day meeting of the Federal Reserve board of governors begins tomorrow. The first data on auto sales in October is expected tomorrow as well.  We have noted the following events (all times Eastern):

10:00 a.m. — ISM Manufacturing index released
10:00 a.m. — US construction spending for September 2011

Albemarle Corporation (NYSE: ALB) Raised to Neutral at BofA/ML.
Amazon.com Inc. (NASDAQ: AMZN) Cut estimates and target to $200 at Credit Suisse; maintained Buy at BofA/ML.
Bed Bath & Beyond Inc. (NASDAQ: BBBY) Reiterated Buy and raised target to $70 at Argus.
BP PLC (NYSE: BP) Raised estimates at BofA/ML.
Celgene Corporation (NASDAQ: CELG) Raised to Outperform as Bull of the Day at Zacks.
C.H. Robinson Worldwide Inc. (NASDAQ: CHRW) Cut to Neutral at BofA/ML.
First Solar Inc. (NASDAQ: FSLR) Cut to Hold at Kaufman; Cut to Hold at Jefferies; Cut to Sell at S&P Capital IQ (late Tuesday).
The Hain Celestial Group, Inc. (NASDAQ: HAIN) Raised to Hold at S&P Capital IQ (late Tuesday).
Human Genome Sciences Inc. (NASDAQ: HGSI) Cut to Hold at Brean Murray.
3M Co. (NYSE: MMM) Cut to Market Perform at William Blair.
Mitcham Industries, Inc. (NASDAQ: MIND) named the Value Stock of the Day at Zacks.
The New York Times Company (NYSE: NYT) Cut to Neutral at Citigroup.
Saks, Inc. (NYSE: SKS) named Aggressive Growth stock of the day at Zacks.
Talisman Energy (NYSE: TLM) Cut to Underperform as Bear of the Day at Zacks.
Yingli Green Energy Holding Co. Ltd. (NYSE: YGE) Cu to Neutral at Collins Stewart.
Youku.com Inc. (NYSE: YOKU) Cut to Neutral at Susquehanna.

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JON C. OGG

It’s not too surprising that First Solar, SunPower, and MEMC are keeping a low profile on this issue. All three own project development and construction companies that focus on large-scale solar projects that are highly likely to use the company’s own solar panels. Pure solar installation companies, like Real Goods Solar Inc. (NASDAQ: RSOL) and privately held Sungevity and SolarCity, have welcomed the lower prices for solar panels because it lowers their system costs and generally helps their business.

As we noted earlier this week, solar panel manufacturing jobs are relatively small beer in the US. The increased availability of financing for residential and commercial rooftop systems is driving the solar installation business in the US, and it is being helped by lower prices for solar panels.

Another twist in this story is that Chinese solar PV makers are currently suffering at least as much, if not more, than their US counterparts. Plummeting prices coupled with manufacturing capacity increases have hurt Suntech and LDK significantly. Some of the Chinese solar makers are also being questioned about their accounting practices, and that has cast a pall over the entire industry.

Unanimity among US solar companies is virtually guaranteed to go missing as this case proceeds. Every company has a different axe to grind, with the large US PV makers/project developers clearly wanting to steer clear of the case, along with US installers who benefit from the lower prices for solar panels. SolarWorld, with about 1,300 US manufacturing employees, and a handful of other small start-up firms are likely to be the only supporters of the trade case.

Politicians from both parties are likely to jump on this case because it has an obvious good guy — the US — and an obvious bad guy — China. Just about any comment from either party can be safely ignored. The lost solar manufacturing jobs would have gone to offshore in any event. Most of First Solar’s manufacturing is done in Malaysia and SunPower’s largest plants are in the Philippines.

The real reason that China supports so much solar manufacturing is not simply labor costs, but the low cost and easy access to capital. That may be changing now, as the country tries to cool off its economy and its inflation rate. The ability of China’s manufacturers to continue driving down costs may be coming to an end regardless of this trade case.

Paul Ausick