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Evergreen Solar, SunPower Among Solar Stars - Kaufman

by: Tiernan Ray May 28, 2008 | about stocks: AKNS / AMSC / BCON / CREE / ESLR / FSLR / SPWRA / WFR    
Tiernan Ray

Tiernan Ray

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A broad initiation of coverage today by analyst Theodore O’Neill at Kaufman Brothers sifts the relative advantages of several companies tied to producing alternative energy technology. In brief, O’Neill likes the prospects for the shares of Akeena Solar (AKNS), American Superconductor (AMSC), Beacon Power (BCON), Cree (CREE), Evergreen Solar (ESLR), SunPower (SPWR), MEMC Electronic Materials (WFR), with “Buy” ratings on each, and is less enthused about Applied Materials (AMAT) and First Solar (FSLR), with “Hold” ratings on both.

Akeena is a “pure play” on residential installation of solar panels that O’Neill thinks could be an acquisition target. He says the decline in the shares from $16 in January to around $6 now is largely over worries about the U.S. Investment Tax Credit (a solar subsidy), worries that may be overdone. American Superconductor is a “pure play” on wind power. They don’t make superconductors (pity), they make wind turbines! Beacon makes energy storage devices, specifically of the “flywheel variety.” Not much I can shed on that technology, but it will be in commercial production by the end of this year, with the first installation in Stephentown, New York. Cree, a little better known, is a light-emitting diode maker, and O’Neill expects them to benefit as “there are more than five billion lightbulbs in the US, and they will need to be replaced.”

Investors are downplaying the complexity of the components Cree makes for blue-colored LEDs, he insists, and therefore over-rating the competition. SunPower is the company that “gets the first call” when investors are looking for help designing and managing solar farms, observers O’Neill. He thinks the company will double capacity this year and will beat First Solar in revenue next year. MEMC, which makes polysilicon wafers that go into solar panel production, will have a “robust” market over the next 18 to 24 months, O’Neill expects. The ferocious demand for poly by the solar business should make this “one of the best times” for MEMC, even as new capacity comes online, “particularly if oil rises to $200,” says O’Neill, implying even more ferocious demand for alternative energy.

Expectations are “low” for Evergreen Solar, thinks O’Neill, but the company is poised to lower its cost of goods by owning both its own polysilicon wafers and its own panel production equipment, allowing it to rapidly add capacity and bring costs down, he believes. A $750 million panel order the company announced on May 22 is being “dismissed by the bears,” he says, but that order may be “the first of many.”

As for Applied and First Solar, although the latter deserves its “impressive” valuation — 33 times sales — the company will find it difficult to make share gains, thinks O’Neill, and thus sales growth potential is limited. The reason: Applied is arming the competition with tools for solar panel manufacture, and the cost of goods for those competitors will come down as silicon spot prices fall, making First Solar’s competition more cost-effective than they have been. As for Applied, it’s solar business is promising, but deterioration in the traditional semiconductor equipment business limits the stock’s appeal.

Update: O’Neill adds that when he posed as a residential customer building a home in Connecticut, Akeena seemed to have the best sales response. The company readily provided him with tax and pricing information for the potential solar panel installation, and made efforts to contact him by phone and by email. By contrast, he says that SunPower were “super fast” at responding to his inquiries as a potential customer, but because they contract out to third party installers, “they are leaving money on the table. It’s been weeks and the only people showing up next Thursday at my home are the folks from Akeena.”

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This article has 8 comments:

  •  
    May 29 09:01 AM
    Beware of obscure anaylists pumping heavily shorted stocks.
    Reply
  •  
    May 29 09:03 AM
    SPWR now has 38% short interest. Insiders keep dumping and Cypress will be dumping also.
    Reply
  •  
    May 29 09:24 AM
    this guy has better ideas than merrill. those recommending fslr are tied to big industry interest groups and are not promoting any company that sells products giving the end user energy independence. because they finance utilities that need to sell electricity. beware of the propaganda from the likes of merrill and citibank.
    Reply
  •  
    May 29 09:42 AM
    Gebby,

    End "end user independence" will never happen. It is always priced out of the end users range by the same companies that say they want to help the end user.....and by how? Gauging the industry. I will say again. These solars are Chinese stocks. China is communist with a pegged currency. So China stocks is the biggest oxymoron in the market. Enough said. You have a better shot in Vegas than going long these stocks.

    Now for FLSR and SPWR. High P/E ratios. Very high. The insiders are selling worse than Mozillo at Countrwide and the guys at Thornberg and IndyMac. Look where those stocks are now. Ahern sold over 150 million dollars worth of stock on the 15 and 16th of May. Doesn't appear to be a "buy and hold" long term stock. Same with SPWR.

    AMAT, GE, and the bigger players will ultimately win long term in the solar space, if solar is going to get bigger, which I doubt. Nuclear will be the choice for our electricity needs.
    Reply
  •  
    May 29 10:25 AM
    i am a seller of fslr and i am not long spwr. i like the chinese names they will own the industry. they are the cheapest producers. but wall street recommends the names that are building the farms. with mandates the residential user will be able to afford installations. but this is not what your local utitlity or bank wants. supershort....global warming is real which is why governments like norway are paying big bucks to sequester carbon under the north sea. you have to believe the u s govrnment is falling in line with carbon controls to like these stocks and i see that the u s government is. after bush.
    stocks i own with hedges are stp, ldk, sol, eslr, csiq and solf. owned ener . also look into ctdc. they are next to get a play
    Reply
  •  
    May 29 04:19 PM
    I think that solar is a very regional industry. Here in the San Francisco area there seems to be a new solar installation company popping up every day. While Akeena is doing quite well, so is Marin Solar (who did our installation) and Solar City. Sunpower is well respected because it has the most efficient panels; the final assembly and shipping are local. Marin Solar only uses Sunpower and they do an awful lot of public and commercial installations. Sunpower also does solar-powered utility power plants; they recently completed power plants in Spain and South Korea. I'm holding on to my stock. Claire
    Reply
  •  
    May 29 10:09 PM
    this might be the year of wind...solar is slacking....

    -scott
    solarfeeds
    Reply
  •  
    Jun 01 09:54 AM
    I agree thatWFR is a buy while FSLR is a 'hold' ('sell' in my opinion). I'm looking to cash in on real earnings, not potential. This is why I haven't bought any FSLR, which would be a prime candidate with the way it's growing.. both FSLR and WFR are worth 20 billion. WFR brought home a gross profit of 260 million this quarter, compared to 91 mill from FSLR.. so I'm looking for the company with less hype and more actual juice. You will see this all across my energy position. I hold large caps that are best positioned for sustained profits like CHK, BHP and PTR.
    Remember, my friends that with all the enthusiasm, 2008 is and will continue to be a rough year over all. We've all been raking in returns in the 30-40% rate range for the past few years, but I think these days smart money has to go on low well run, low P/E 'here to stay' companies.
    Reply
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