Mike Ahearn, chairman of the world’s largest manufacturer of solar panels, had every reason to party in September. That’s when his company, First Solar, based in Tempe, Ariz., was picked by China to build what promises to be the world’s biggest solar-electricity plant: a Manhattan-size facility in Inner Mongolia providing 2 gigawatts of power, about twice the size of a large coal plant or average nuclear power station. But the Chinese facility will take years to build, and the party buzz subsided pretty quickly. The next month, Wall Street analysts downgraded First Solar’s stock after the company missed its third-quarter revenue target. "I think the Wall Street perspective is pretty short-term," says Ahearn.
That’s true, but it’s also true that, while photovoltaic cells that turn sunlight into electricity may play a potentially vital role in weaning the world from fossil fuels, a transition will take decades — and the business metrics surrounding the solar-power industry currently are anything but bright. After a period of rapid expansion, panel manufacturers today are reeling from a pronounced supply surplus, falling prices and stagnating sales. In 2009, industry revenue plunged by nearly 40% to about $25 billion from $40 billion the previous year, according to BankAmerica Merrill Lynch alternative-energy analyst Steven Milunovich. Solar-panel output far outstripped demand last year; manufacturers made 66% more product than they were able to sell, estimates research firm iSuppli located in El Segundo, Calif. Some analysts believe the dismal conditions will persist into 2011, setting up marginal players worldwide for failure. "A large number of manufacturers will not survive," says Paul Semenza, an analyst with research company DisplaySearch, based in San Jose, Calif.
The global glut has been building for a number of years as hundreds of solar cell and panel start-ups, attracted by a potential boom in alternative energy as oil prices climbed and by government solar-energy-subsidy programs, swarmed into the market. Because the industry’s barriers to entry are relatively low — crystalline solar cells are rudimentary semiconductors that are comparatively easy to make — the number of solar-panel and photovoltaic suppliers mushroomed nearly tenfold from 2002, when there were about 80 manufacturers, to somewhere between 500 and 800 today, according to iSuppli. In China and Taiwan, whole solar-energy sectors sprouted almost overnight. Stefan de Haan, an analyst for iSuppli, says industry profit margins,…
Industry fundamentals are looking pretty bad for solar.
After enjoying a few years of tight supply, far too much solar production capacity is coming online as a result.
Government policy hasn’t helped either. For 2009, half of total solar production might not even be sold due a change in government policy from a major solar buyer, Spain.
WSJ: Spain accounted for more than 40% of all new solar panel installation globally last year, installing 2.7 gigawatts — five times the 2007 figure — out of a global total of 5.6 gigawatts. According to Spain’s photovoltaic industry association, Asif, the country’s market was worth €16.38 billion ($23.24 billion). This year, with cuts to aid and a more complicated application process, there has been no new installation in Spain.
Other countries are introducing aid to the solar sector, particularly the U.S. But the new U.S. measures aren’t expected to arrive in time to shore up demand this year. And while China has pledged support for the solar industry via economic-stimulus packages, support is likely to primarily benefit its own low-cost producers that have easy access to credit from state-owned Chinese banks.
Even based on bullish Barlcays numbers shown below, supply is likely to oustrip demand by 30-40% for many years. This could collapse prices down to merely the cost of production… or worse.
Sahm Adrangi: Currently, there is too much supply in all the steps. There is too much polysilicon. There are too many wafers. There are too may solar cells and there are too many modules. The oversupply began in 4Q08, and has only become more exacerbated as time has gone on. Polysilicon prices have crashed from about $400/kg to about $70/kg. Marginal cost is estimated to be around $35 to $45/kg, and I’ll bet that prices will get there soon enough.
Perhaps companies such as Suntech (STP), Yingli (YGE), SunPower (SPWRA), and even First Solar (FSLR), despite its technology advantage, could be in for a long, nasty price war.
I’ve been a long time investor in the solar space (circa late 06) and one thing that has really irked me over the years is the complete lack of differentiation. Much like the market as a whole nowadays, its "all or nothing" in this space. The one exception has been First Solar (FSLR) – an American "thin film" (different technology than most solar companies) producer. The Chinese names have especially all been thrown together in one pot and when its time to run up solar, they all go up together (in varying degrees) and when solar is out of favor they all get pole axed. Hence doing any due diligence is really a waste of time.
Yingli Green Energy (YGE) and a company that has cost me many real (and virtual) dollars over the years, Trina Solar (TSL) are 2 of the Chinese solar markets with good size, and the most integrated production models. This should have differentiated them over the years – but as I said above, not in American investors eyes. We like "big easy to understand, sweeping themes" – i.e. oil up, solar good. And that’s as comprehensive as it seems to get.
We are seeing some nice action in both these names today, on the back of an analyst report which is alluding to the advantages the two companies have. Now that silicon (which is the main cost component on the material side) has swooned after bottlenecks plagued the industry for 3+ years, the other main cost is labor. And you are not going to compete with the Chinese on labor costs…
Both Trina Solar (TSL) and Yingli Green Energy(YGE) shares are trading higher today following upgrades by Morgan Stanley analyst Sunil Gupta. He thinks both companies are going to take market share in the solar sector from U.S.-based and European rivals. Here are the details
First Solar (FSLR) gave an "impressive" presentation yesterday at its investor/analyst meeting about the future of its business, but it wasn’t enough to make analysts feel better about the stock.
We’ve received analyst reports morning from FBR, Deutsche Bank and Cannaccord Adams. Here’s their summaries:
Canaccord Adams downgraded from Buy to Hold with a $180 price target with a 25x multiple of its 2009 EPS estimate.
IMPACT: Modestly negative. First Solar remains the leading solar company, in our opinion; however, the company issued fairly ambitious targets with respect to the project pipeline and technology advances, and a lack of visibility into further positive catalysts remains. Additionally, the company’s business model and financial model are changing fairly significantly. As we suspected, the company’s new focus will lower GMs but likely increase income in absolute terms. While the company has finally properly set expectations, we believe that the decreasing margin profile may turn some investors off until the higher income and cash flows actually materialize.
FBR has an underperform rating with a $110 price target with 5X EV/sales and 12x EV/EBITDA, versus the its peer group (SPWRA, STP, TSL, YGE) average of 1.5x EV/sales and 8x EV/EBITDA.
We walked away from the First Solar (FSLR) analyst event impressed with the quality of presentation and the company’s long-term vision, which was communicated clearly, We continue to believe that First Solar is among a few industry leaders that have sound long-term and short-term strategies based on the realities of the industry. However, in light of the fact that the company has now publicly acknowledged that the business model is changing (revenue mix has changed from one item to three separate items), we think there is an increased probability of a capital increase (to beef up the balance sheet), while challenges remain in the near term (excess inventories, customer insolvency, tight credit market) that are the most important factors, which, in our view, will pressure the stock for the remainder of CY09. Additionally, we walked away feeling incrementally confident that the consensus estimates are too aggressive and do not reflect the realities of the industry.
Deutsche Bank maintains its hold rating raising its price target to $170 from $167, with a 20x C2010 EPS valuation.
Someone is trying to knock First Solar (FSLR) off its perch by tipping investigators that its OptiSolar acquisition might not be above board.
A private citizen told California investigators to check out the land rights First Solar said it acquired when it paid $400 million in stock for OptiSolar’s project pipeline. When the deal was announced, First Solar said it received "strategic land rights of approximately 136,000 acres." In reality, OptiSolar only had applications for the land rights.
Applications are considerably less valuable. If First Solar labeled those applications as assets, and priced them into the acquisition, then the company may be in violation of the law. At this point, it’s unclear if First Solar did or did not label them as assets. It’s also unclear if it’s illegal to price them into the deal, reports Dow Jones.
In spite of the haze around this minor infraction, it’s receiving a decent amount of coverage. Major news outlets are reporting on it as well as most energy/solar focused blogs.
Our intial reaction was that this was much ado about nothing. The Bureau Of Land Managment in California is worried about speculators paying for applications, holding them, then selling them to developers at higher prices. We don’t consider First Solar a speculator, so we thought it was long shot that they were violating the law.
While developing a project is not First Solar’s typical operating pattern, it is a direction the company is heading. In the relase announcing the OptiSolar acquisition, First Solar mentioned other construction projects it was working on. For this reason, we don’t think First Solar plans on just selling off its application permits.
We are curious about the identity of the "private citizen" that tipped investigators. After news broke that First Solar was under investigation, Earth2Tech reported that:
A couple weeks ago we received an email query from an exec at an environmental group wondering about the legality and ethics of solar maker OptiSolar incorporating yet-to-be-approved Bureau of Land Management land applications into its price when solar giant First Solar agreed to acquire the thin-film PV company back in March. I’m not sure how legal it is, I told him, but I would assume
To those who have already submitted their applications to launder their cash buy an apartment or better yet, have already wired the money to purchase any of the still to be built residences at 432 Park, the 84-story giant that is set to become the tallest residential building in the Western hemisphere, congratulations.
Although that is technically inappropriate: for full effect we would have to say "congratulations" in the buyers' nat...
Note from dshort: In response to a special request and in light of the strong market performance in the S&P 500 and meteoric rise in the Nikkei 225, I've updated my Mega-Bear weekly chart series through Friday's close.
It's time again for an update of our "Real" Mega-Bears, an inflation-adjusted overlay of three secular bear markets. It aligns the current S&P 500 from the top of the Tech Bubble in March 2000, the Dow in of 1929, and the Nikkei 225 from its 1989 bubble high.
The chart below is consistent with my preference for real (inflation-adjusted) analysis of long-term market behavior. The nominal all-time high in the index occurred in October 2007, but when we adjust for inflation, the "real" all-time high for the S&P 500 occurred in March 2000.
Global X, the New York-based ETF sponsor known for its unique lineup of commodities and emerging markets funds, announced six of its ETFs will be reverse split, including three gold mining-related funds.
The $29.4 million Global X Gold Explorers ETF (NYSE: GLDX) will undergo a 1-for-4 reverse split while the $2.78 million Global X Junior Miners ETF (NYSE: JUNR) will see a 1-for-3 reverse split. The Global X Pure Gold Miners ETF (NYSE: ...
It seems that every Tuesday in 2013 since January 8 has been positive on the Dow. And this past Tuesday was no exception. Now that sounds like a trend to put money on -- buy the SPDR Dow Jones Industrial Average ETF (DIA) at the close each Monday and close out the position late on Tuesday.
The Dow and S&P 500 both hit new all-time highs once again on Wednesday, while the Nasdaq hit its highest level since November 2000. The “risk on” allocation of new investment capital into cyclicals continues, although Wednesday saw leadership from defensive sectors Consumer Staples, Utilities, and Telecom, along with Financials. Nevertheless, ConvergEx reports that the average correlation of the ten S&P business sectors to the overall index averaged 82% last month. While that is below the 86% averag...
BMY - Bristol-Myers Squibb Co. – Shares in drug maker, Bristol-Myers Squibb Co., are ripping higher today, up 6.5% at $44.94, the highest level in more than a decade, ahead of the release of the American Society of Clinical Oncology (ASCO) 2013 Annual Meeting abstracts tonight. The ASCO Annual Meeting begins on May 31st in Chicago. Options on BMY are far more active than usual today, with overall volume topping 64,000 contracts by 12:25 p.m. ET, versus average daily volume of around 11,400 c...
We are starting to see some very extreme readings on our monthly and weekly index charts since there has been no correction this year. I posted below first the monthly chart of the S&P 500 going back 15 years showing bollinger bands – rarely do we get above the upper one, and never have we been this far above. Then below that I posted (with 4 charts of 4 years each) the weekly data and you can see we are at a rare time we are above the weekly bollinger band as well. This non stop rally is getting very historical.
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Stock market posts another record setting week, but the big news came after Friday’s close.
Courtesy of NASA
The stock market put on another record setting show with the Dow Jones Industrial Average (NYSEARCA:DIA) closing at a record high 15,118 and the S&P 500 (NYSEARCA:SPY) closing at 1633.70, another all time closing high.
For the week, the Dow Jones Industrial Average (NYSEARCA:DIA) gained 1%, the S&P 500 (NYSEARCA:SPY) climbed 1.2%, the Nasdaq Composite (NYSEARCA:...
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Well, well, well....it is good to know that there are others in the scientific arena who believed that YMI Bioscience's data (cough - Gilead) is a better drug than Incyte's Jakafi. Now, the definitive data are still unknown, but there was enough evidence from a Phase 2 trial to take a small risk for a huge reward. So, let's forget about Apple (AAPL), and do nothing but biotechs from now until Congress passes universal health care coverage for prescriptions....and drive the prices down so that research and development is no longer feasible to conduct in the US. Even Seattle Genetics (SGEN) has been on a tear as of late...
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