Trying To Find Growth Potential in Solar Stocks (AMAT, FSLR, WFR, GTAT, SPWR, STP, TSL, LDK, JASO)

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SunPower Corp. (NASDAQ: SPWR) has a consensus target price of $9.70, and shares are trading today at $8.33, for an implied gain of 16%. SunPower made about 50% of its revenues in the last quarter from installing residential and commercial systems. For now, this is where the money is. Provided the company can continue to grow its installation business, the target price is within reach — maybe even likely.

Suntech Power Holdings Co. Ltd. (NYSE: STP) has a consensus target price of $2.57, and shares are trading today at $3.61, signalling at least a fully valued stock. Suntech is the world’s largest supplier of solar panels, and a burst of installations in Germany ahead of that country’s subsidy cut in April has helped Suntech. The company has also reduced its inventory overhang and could be poised for a modest uptick in business.

Trina Solar Ltd. (NYSE: TSL) has a consensus target price of $9.15, and shares are trading today at $9.98, again signalling a fully valued stock. Trina shares are up more than 47% since the beginning of the year. Like Suntech, Trina is a low-cost, high-volume maker of solar panels and it faces all the same problems. One could argue that the target price should be higher, but a sobering question would be, “For how long?”

LDK Solar Co. Ltd. (NYSE: LDK) has a consensus target price of $3.25, and shares are trading today at $6.34, indicating yet another fully valued stock. Shares are up more than 50% year-to-date, most likely on a statement from the Chinese government that it plans to double solar installation this year. That could happen because China needs to boost its manufacturing again and the country is making some monetary moves that could drive solar investment. LDK, Trina, Suntech, and JA Solar would all get a nice bump if the government comes through.

JA Solar Holdings Co. Ltd. (NASDAQ: JASO) has a consensus target price of $2.25, and shares are trading today at $2.12, indicating a potential gain of about 6%. Shares are up 57% since January. One could argue that JA Solar’s target price will have to rise, but here again, which of the Chinese makers gets the government’s solar installation business this year will be the determining factor in which of the Chinese makers succeeds and which don’t.

Target prices have been breached throughout this sector primarily because analysts kept lowering the bar to meet diminishing expectations. Share prices have been advancing, but perhaps more quickly than the underlying business would warrant. Most solar watchers expect an uptick in business during the second half of 2012, but the first half of the year is when these companies usually generate most of their revenue and profits.

Making an investment in any of the Chinese companies is nearly pure speculation at this point. A significant point to recall is that the debt load of these companies should be discounted when looking at a possible play here. Even with that, none of the Chinese solar makers looks like a genuine possibility for significant growth.

Among the US companies, only SunPower has managed to get itself into a position to take advantage of the latest financing schemes, which favor residential and commercial installations over utility-scale projects. Applied Materials, of all these stocks, looks like the best bet because it has found a way to replace its solar business with products that people want — smartphones and tablets.

Paul Ausick