Will All Oil Companies Buy Into Solar Future? BP Vindication? (TOT, SPWRA, BP, COP, CVX, XOM, FSLR, JKS, JASO, TSL, STP, LDK, CSIQ, WFR, ESLR, TAN)

April 29, 2011 by Jon C. Ogg

Solar stocks have been wickedly punishing for many shareholders after the oil bubble of 2008 popped and then again during the recession.  A new dal may have just reset the value as a deal came that we all wondered “when” that magic moment might arise… It is an ‘Almost Merger’ where French integrated oil and energy giant Total SA (NYSE: TOT), with its $142 billion in market value, is paying a nice premium to acquire a majority stake in SunPower Corporation (NASDAQ: SPWRA).

What the big question is boils down to whether or not other integrated oil and energy companies will buy into solar, either with majority stake acquisitions or with outright acquisitions in the space.  BP plc (NYSE: BP) may have a tarnished reputation in oil drilling, but it is one of the top solar players out there and its solar operation would likely be one of the largest solar companies out there if it was a standalone business. ConocoPhillips (NYSE: COP) and Chevron Corporation (NYSE: CVX) both discuss solar and other renewable energy, and Exxon Mobil Corporation (NYSE: XOM) has dabbled in alternative energy and diversified into natural gas.  Oil may still be depended upon 20 years or even 50 years from now for many operations, but solar and other alternative or renewable energy sources are all likely to be looked at and at least reviewed by the integrated oil and energy giants.

This move is making waves in the solar sector.  Would you expect anything else?  We are looking briefly at First Solar, Inc. (NASDAQ: FSLR), JinkoSolar Holding Co. Ltd. (NYSE: JKS), JA Solar Holdings Co., Ltd. (NASDAQ: JASO), Trina Solar Ltd. (NYSE: TSL), Suntech Power Holdings Co., Ltd. (NYSE: STP), LDK Solar Co. Inc. (NYSE: LDK), Canadian Solar Inc. (NASDAQ: CSIQ), and even MEMC Electronic Materials Inc. (NYSE: WFR) and then even Evergreen Solar, Inc. (NASDAQ: ESLR).  This is even rubbing off on the ETF in solar of Guggenheim Solar (NYSE: TAN).

This current Total-SunPower deal was valued at $1.38 billion where Total is offering $23.25 per share in a tender for up to 60% of the solar panel maker. While this comes at more than a 75% discount to the 2007 and 2008 peak in SunPower and other solar giants, this does assign a significant premium to today’s share prices.  Total will also offer up to $1 billion in loans and liquidity to SunPower. SunPower Corporation (NASDAQ: SPWRA) is trading up 40% this morning at $22.65 and the prior 52-week trading range was $9.61 to $19.88 and the prior $1.5 billion market cap is now looking more like about $2.3 billion. 

First Solar, Inc. (NASDAQ: FSLR) is up 3.3% at $143.00 after the open against a 52-week range of $100.19 to $175.45; its market cap is the largest of all solar stocks at $12.3 billion.

JinkoSolar Holding Co. Ltd. (NYSE: JKS) is one we actually highlighted before as a value stock due to dirt cheap earnings that still has growth but it is Chinese.  Its shares are up almost 6% at $27.44, its 52-week range (actually less than a year) is $8.23 to $41.75, and its market cap is about $650 million.

JA Solar Holdings Co., Ltd. (NASDAQ: JASO) is also based in China, but its shares are up 3.2% at $6.66, it has a 52-week range of $4.22 to $10.24, it has low earnings multiples, and its market cap is $1.1 billion.

Trina Solar Ltd. (NYSE: TSL) is Chinese as well and trades with low earnings multiples, but its ADR is up 3% after the open at $28.76, its 52-week trading range is $14.85 to $31.89, and its market cap is $2.25 billion.

Suntech Power Holdings Co., Ltd. (NYSE: STP) is up almost 3% at $9.32 from China, its 52-week range is $7.05 to $14.10, and its market cap is $1.68 billion.

LDK Solar Co. Inc. (NYSE: LDK) is Chinese and trades at low multiples and still has growth.  Its ADR is up 3.6% at $11.56, its 52-week range is $4.97 to $15.10, and its market cap is $1.67 billion.

Canadian Solar Inc. (NASDAQ: CSIQ) is up 4.4% at $10.75, its 52-week range is $8.99 to $18.76, and its market cap is only $461 million.

MEMC Electronic Materials Inc. (NYSE: WFR) is a bit odd considering that it makes the silicon materials used for making semiconductors and then for PV panels and it has been a very controversial company due to business changes.  MEMC shares are up over 7% at $11.96 against a 52-week range of $9.19 to $15.95, and its market cap is $2.75 billion.

Evergreen Solar, Inc. (NASDAQ: ESLR) is one we would not expect anything to ever happen with as it is tiny and loses money, despite being the first or one of the first public solar stocks.  Its shares are up almost 2% at $1.45 right after the open.

Guggenheim Solar (NYSE: TAN) is up 4.1% at $8.80 against a 52-week trading range of $6.02 to $9.34.

In short, if a company has the name and operation of ‘solar’ its shares are up. As a reminder, oil companies and many big energy companies tend to trade at sub-market earnings multiples or at least at low premiums to the market in general.  That being said, it would be unlikely to expect the giant integrated oil and energy giants to overpay for acquisitions that are highly dilutive.  They may buy companies in the solar space and in other alternative energy spots but they are not likely to offer mega-premiums for companies that do not have positive earnings and which do not have scalable models out into the future.

JON C. OGG