These are the top five names in solar: First Solar, Renewable Energy Corp., Q-Cells, SunPower, Suntech.
This is their stock performance over the past year:
In the best case from those five scenarios, First Solar, the stock is down 26%; in the worst case, Suntech, the stock is down 83%.
Something just doesn’t seem right here. Over 5.2 gigawatts (GW) of new solar capacity were installed last year–a record that crushes the 2.2 GW installed in 2007. But despite the 136% year-over-year capacity growth, shaky policy and deteriorating finance conditions have given investors cold feet, driving down stock prices as you can clearly see.
So what’s going on here? Has Wall Street rightfully rowed its solar boat ashore, or has their short-sightedness left solar shares ripe for the picking?
Solar Stocks: Wall Street Loves to Hate ‘Em
Consider this: Hours before SunPower reported its earnings last week, Barron’s ran an article giving credit to Hapoalim Securities analyst Gordon Johnson’s initiation of coverage of the stock with a $15 price target and a ‘Sell’ rating.
SunPower’s earnings came out an hour later. They reported record fourth quarter and year-end revenue and profit. For the full year 2008, the company’s profit grew 891% per share, to a total $92.3 million.
The stock climbed 21% overnight and into the next trading day, and Gordon Johnson could probably taste the foot in his mouth.
This seems to be a theme with ‘mainstream’ market analysts. They rely too much on the here and now, rigidly fastened to the numbers of the day, without regard for a rapidly changing energy and political picture.
It doesn’t matter to them that that cumulative installed solar capacity is forecast to grow 374% between now and 2015. It doesn’t matter to them that an Obama and Chu-led energy administration will mandate renewable portfolio standards (RPS) with a solar requirement while providing long-term guidance for tax incentives and credits. It doesn’t matter to them that capping U.S. emissions, which will happen in the next two years, will make carbon a liability and give it price, making renewables all the more sought after and competitive.
All they see is the slippage of gross margins from 20% to 18% or the missing of analyst estimates by $0.02. Give me a break.
Solar Stocks: Not All Fun & Games
Don’t get me wrong, the solar industry isn’t a supreme being. It is still subject to the fundamentals of economics and, like most industries right now, is feeling the sting of global recession.
And, in addition to broad economic problems, there are still industry-specific hurdles to overcome.
Demand is seen to be falling modestly as customers delay orders or can’t get financing to make purchases. That news alone has been enough to fuel rumors of a ‘solar panel glut’ in 2009, which obviously hasn’t been good for stock prices considering how much The Street loves rumors.
Credit tightness in general has also forced solar companies delay plant build-outs or other capital-intensive growth plans.
All this will ease in step with the global economic recovery. In the meantime, there are still some positives for the industry.
In addition to the forecast growth, policy guidance, and carbon capping mentioned above, the solar industry is also experiencing cost reductions for its primary raw material, polysilicon.
For the past few years, high silicon prices have haunted the industry, with many panel producers forced to raise prices as they paid a premium for raw material on the spot market. Now, new silicon capacity has come to market, and New Energy Finance thinks prices could be as much as 43% lower this year.
That may hurt silicon producers, but it will help the solar industry as whole. Falling raw material prices mean lower turnkey prices for solar. And that’s always been the primary goal: reduce price to attain parity with coal.
Indeed, grid parity is on the horizon, with many locals already enjoying solar energy prices on par with fossil fuels.
And therein lies the bittersweet take-a-way here: solar has arrived.
Once an industry of heightened hopes, propelled by lofty notions of a clean energy future and essentially free power, the solar industry is now a commodity–a rank-and-file sector on CNBC’s bottom ticker, like ‘healthcare’, ‘financials’, or, dare I say it, ‘basic materials’.
Gone are the days when a solar stock could run 25% because R&D reported a 2% efficiency gain. Wall Street now judges the sector on equal footing with the rest.
The cleantech future isn’t coming, it’s here.
Someone better tell the ‘mainstream’ analysts, because I can’t think of another industry forecast to grow 374% in the next six years–except, perhaps, wind.