Alternative Energy Daily: When Solar Stocks Look Like Value Stocks (FSLR, SPWRA, ESLR, JASO, TSL, STP, LDK)
Our “Alternative Energy Daily” focuses on some of the key solar stocks with an eye on evaluating these as “value stocks” with growth potential out into 2012. Those under review are First Solar, Inc. (NASDAQ: FSLR), SunPower Corp. (NASDAQ: SPWRA), Evergreen Solar, Inc. (NASDAQ: ESLR), JA Solar Holdings Co., Ltd. (NASDAQ: JASO), Trina Solar Ltd. (NYSE: TSL), Suntech Power Holdings Co., Ltd. (NYSE: STP), and LDK Solar Co. Inc. (NYSE: LDK).
Before the tragic earthquake and tsunami that hit Japan on March 11th, many of these stocks had already seen big gains. LDK shares were up about 70%, JA Solar shares were up about 40%, First Solar shares were up about 35%, and Trina shares were up about 25%. The others were trading down, with Evergreen down more than -80%.
The damaged nuclear reactors will not be back in service for at least two or three years, and very likely never. That means that Japan will need to replace the lost baseload capacity. Because solar PV is cheap compared to nuclear and easy to install, investors jumped on solar shares and boosted prices by as much as 20% in a couple of days. Enthusiasm has cooled a bit since March 17th, but for the most part the shares have held about half their gains.
Before the Japanese disaster, the outlook for solar makers was definitely mixed for 2011. Production is expected to outstrip demand, primarily due to incentives changes in Europe. The US, China, and India are expected to pick up almost all the slack. That’s great, but with supply exceeding demand overall, prices will fall and the low-cost makers should be able to withstand the price drop better. We took a look at forward year estimates to imply the growth and forward P/E ratios to see which of these make for “value stocks” for investors.
First Solar has the largest market cap of any solar PV maker, at nearly $13 billion. Because of its thin-film process, First Solar is the low-cost per kilowatt leader and, as such, it is better prepared than any of its competitors to adjust its prices. If prices do soften, First Solar won’t have to reduce pricing much if at all. This is a very strong position going forward. The company’s forward P/E ratio for the year ending in December 2012 is 13.58. First Solar’s mean share price target is $163.42, and the stock is trading at $150.18, in a 52-week range of $100.19-$175.45.
SunPower has a market cap of $1.51 billion. It’s forward P/E ratio for its fiscal year ending January 2013 is 6.92. The company makes the most efficient solar PV cells around, but it is heavily exposed in Italy. The good news for SunPower is that its margins for its most recent quarter grew year-over-year from 20.3% to 25.4%. SunPower’s mean price target is $18.58, and the shares are trading at $16.40, in a range of $9.61-$19.88.