Solar Sector Earnings Preview (FSLR, SPWR, STP, CSIQ, ENER, ESLR)
If you follow solar stocks, you’ve probably seen Lazard Capital Markets covering the sector routinely. Sanjay Shrestha, Managing Director and Senior Analyst of Alternative Energy & Industrials at Lazard Capital Markets, has given a general preview for the solar industry. He expects generally positive results except for a few.
Mr. Shrestha notes in his report, “We look for First Solar (NASDAQ:FSLR) and SunPower (NASDAQ:SPWR) to handily beat expectations. We believe Suntech Power (NYSE:STP) will deliver better top-line results with a potential impact on gross margins. Energy Conversion Devices (NASDAQ:ENER) should be viewed as a turnaround story. The key for Evergreen Solar (NASDAQ:ESLR) remains capacity ramp and additional manufacturing processes improvement following the rollout of Quad. While Canadian Solar (NASDAQ:CSIQ) appear to be taking necessary steps, we continue to evaluate its long-term competitive positioning.”
Silicon supply remains extremely tight, which will negatively affectmargins for companies with limited procurement leverage and large spotexposure despite strong module ASP. Several leading domestic playerswill also enjoy currency benefits, which coupled with ongoing capacityramp and long-term contracts should lead to better than expectedresults. “We expect strong module ASP, essentially flat to modestly upon a sequential basis, primarily driven by an attractive feed in tariffin Spain. We would look for this pricing strength to continue until theend of 2007 with a meaningful decline by 2H08 and also into 2009.”Silicon supply in 3Q remained extremely tight, driven by strongdemand-pull in European markets with spot prices hovering north of$350/kg and expect silicon supply to remain tight into 1H08 with agradual decline in spot prices into 2H08, as select new entrantsdemonstrate success with silicon production given that the majority ofincumbents’ capacity addition has been contracted out.
24/7 Wall St.’s long-term view on the sector is that alternative energystill has a lot of growth ahead. Green business has become bigbusiness, just ask GE. But the shares of many of these stocks appearto be becoming priced for even more than perfection. First Solarshares are up more than four-fold since coming public at the end of2006. That being said, the pressure for these companies to outperformwill be stronger than ever and any disappointments or any non-robustresults may generate some severe profit taking as a near-termreaction.
Jon C. Ogg
October 16, 2007