Expected Price Gains in Solar Stocks Are Strictly Illusions (AMAT, FSLR, WFR, GTAT, SPWRA, STP, TSL, LDK, JASO)

About a month and a half ago, we looked at several solar stocks to try to determine if there happened to be a good value play in the sector. Given the significant drop in share prices since the beginning of the year, the stocks looked more like value traps than values, with one possible exception. Since that time, the outlook for the sector has deteriorated even more. We decided to take another look at the five stocks and have added four of the Chinese solar makers to give a more complete view of what’s going on in the sector. The stocks we have looked at are Applied Materials (NASDAQ: AMAT), First Solar (NASDAQ: FSLR), MEMC Electronic Materials (NYSE: WFR), GT Advanced Technologies (NASDAQ: GTAT), SunPower (NASDAQ: SPWRA), Suntech Power (NYSE: STP), Trina Solar (NYSE: TSL), LDK Solar (NYSE: LDK) and JA Solar (NASDAQ: JASO).

The most noticeable data point is how far off these stocks are from their 52-week highs. The U.S.-based stocks are off nearly 60%, while the China-based companies are down a minimum of 75%. Trina and LDK have been hit with accounting questions, as have many other Chinese firms, and that has carried over to the other Chinese solar makers as well. That is likely the cause of the 15% differential in current distance from the 52-week high.

Applied Materials has a median target price of $12.50 from 17 brokers. Shortly before noon today, shares are trading at $11.96, for an implied gain of $0.54, or 4.5%. Applied’s forward P/E is 12.46 and the company pays a dividend yield of 2.7%. The stock’s 52-week trading range is $9.70 to $16.93, and at today’s price that is about 23% above its 52-week low, posted earlier this morning, and 29% below the 52-week high. Applied’s dividend yield has dropped from nearly 3% six weeks ago, its price target has fallen from $13.88, and it has posted a new 52-week low. At our last look, this was the one company that looked like it might be a value play, but that view is getting weaker by the day. Applied is the only company in this group that pays a dividend.

First Solar has a median target price of $108.50 from 34 brokers. Shortly before noon, shares are trading today at $60.22, for an implied gain of $48.28, or 80%. First Solar’s forward P/E is 5.97 and the company does not pay a dividend. The stock’s 52-week trading range is $50.87 to $175.45, and at today’s price that is about 18% above its 52-week low and 66% below the 52-week high. First Solar is the largest of the solar panel makers measured by market cap. The company’s low-cost leadership has been challenged by the constantly falling prices of crystalline solar manufacturers, particularly the Chinese. Once a growth stock, First Solar shares have performed miserably so far this year.

MEMC Electronic Materials has a median target price of $9.00 from 20 brokers. Shortly before noon today, shares are trading at $6.19, for an implied gain of $2.81, or 45%. MEMC’s forward P/E is 5.84 and the company does not pay a dividend. The stock’s 52-week trading range is $4.58 to $15.04, and at today’s price that is about 35% above its 52-week low and 59% below the 52-week high. MEMC has been able to hold the line somewhat on solar wafers in the face of increasing competition from Chinese makers. The company, like First Solar and SunPower, also owns a solar project development company, SunEdison, and if there is any growth in the solar sector, it is in financing and installing rooftop systems. The project groups of these three companies are geared toward industrial-scale projects, though, so they will have to change direction or they will not see much benefit from rooftop installation growth.

GT Advanced Technologies has a median target price of $15.00 from 25 brokers. Shortly before noon, shares are trading today at $7.34, for an implied gain of $7.66, or 104%. GT’s forward P/E is 3.94 and the company does not pay a dividend. The stock’s 52-week trading range is $6.40 to $17.50, and at today’s price that is about 15% above its 52-week low and 58% below the 52-week high. Formerly known as GT Solar, this company had a breakout first half of 2011 as the expansion of China’s manufacturing capacity created high demand for GT’s specialized manufacturing equipment. Now that capacity exceeds demand, new orders have slowed and prospects for growth are dimming.

SunPower has a median target price of $13.00 from 13 brokers. Shortly before noon today, shares are trading at $9.67, for an implied gain of $3.33, or 34%. SunPower’s forward P/E is 9.28 and the company does not pay a dividend. The stock’s 52-week trading range is $6.60 to $23.36, and at today’s price that is about 47% above its 52-week low and 59% below the 52-week high. SunPower’s shares jumped to 52-week highs on the offer by French energy giant Total SA (NYSE: TOT) to acquire 60% of SunPower’s stock. Shares have tumbled since then, and it is not unthinkable that Total overpaid for the company. SunPower is not a low-cost provider of solar panels, and that could limit the company’s growth going forward.

Suntech Power has a median target price of $4.00 from 30 brokers. Shortly before noon today, shares are trading at $2.37, for an implied gain of $1.63, or 69%. Suntech’s forward P/E is 34.29 and the company does not pay a dividend. The stock’s 52-week trading range is $1.70 to $10.83, and at today’s price that is about 39% above its 52-week low and 78% below the 52-week high. Suntech now makes more solar modules than any other company in the world. That would be great, if the company could sell the modules at a price that offers it a profit. A recent trade case against Chinese solar makers could push these stocks down even more.

Trina Solar has a median target price of $15.00 from 26 brokers. Shortly before noon, shares are trading today at $7.70, for an implied gain of $7.30, or 95%. Trina’s forward P/E is 6.26 and the company does not pay a dividend. The stock’s 52-week trading range is $5.28 to $31.08, and at today’s price that is about 46% above its 52-week low and 75% below the 52-week high. Like Suntech, Trina is a low-cost, high-volume maker of solar panels and it faces all the same problems.

LDK Solar has a median target price of $5.80 from 14 brokers. Shortly before noon today, shares are trading at $3.27, for an implied gain of $2.53, or 77%. LDK’s forward P/E is 10.64 and the company does not pay a dividend. The stock ’s 52-week trading range is $2.55 to $15.10, and at today’s price that is about 28% above its 52-week low and 78% below the 52-week high.  LDK’s implied growth of 77% is pure fiction, at least through the end of 2013.

JA Solar has a median target price of $3.00 from 14 brokers. Shortly before noon today, shares are trading at $2.30, for an implied gain of $0.70, or 30%. JA Solar’s forward P/E is 5.43 and the company does not pay a dividend. The stock’s 52-week trading range is $1.46 to $9.77, and at today’s price that is about 58% above its 52-week low and 76% below the 52-week high. JA Solar shares are the furthest above their 52-week low of any of the stocks in the group. That might be good news if the forward P/E were greater than 5.43. Like the other Chinese makers, this stock is very weak and could be the first of all these stocks to bust the buck on the way down.

Paul Ausick