Four reasons why solar will boom

From Kelvin Schulle
November 04, 2008
About stocks: CSIQ, CSUN, FSLR, LDK, SOL, SOLF, SPWRA, STP, YGE

Four reasons why solar will boom:

1. The solar sector is among the best in terms of earnings compared to other sectors.
   
   Solar companies have reported astonishing earnings in previous quarters, yet the stock price has been beaten down in the same magnitude of other sectors, trading at historical lows. Suntech Power reported 1st quarter 2008 earnings of USD .33 per share on 5/22/08, beat the consensus of USD 0.276 by USD 0.054, and reported 2nd quarter 2008 earnings of USD .38 per share on 8/20/08. This beat the consensus of USD 0.316 by USD 0.064, and is a consistent 19% earning surprise on the upside.
   
   First Solar reported 3rd quarter 2008 earnings of USD 1.20 per share on 10/29/08, and beat the consensus of USD 1.01 by USD 0.188, which is also 19% upside surprise. For some other small players, LDK Solar and Renesola recently raised their earnings of Q3 and year 2008. This will send a signal to investors that solar companies are going strong despite the credit crunch. The hedge fund redemptions in October provide great opportunity for investors to get in at historically low prices for STP and FSLR.


2. The credit crunch has little impact on solar companies’ funding in 2009 and beyond.
   
   Companies like First Solar and Suntech Power are self-funded companies that have been making money all the time, and these two companies have sufficient funds to expand their businesses. However, some small companies such as Yingli Green and Renesola announced they have acquired additional credit lines from Chinese banks, which are not affected by the US financial crisis. LDK solar also said it has no need to raise capital in the next 2 years. It seems to me the solar sector has no difficulty attracting more investment even in this environment.


3. Polysilicon prices will continue to slide, further boosting PV module margins.
   
   According to a Collins Stewart report on Monday, polysilicon prices have declined about 20%-30% over the past three weeks. In a research note, Dan Ries says that prices for high purity polysilicon are down about $100/kg to about $300/kg. This decline is a welcome relief for module makers as it will help to offset the sharp reduction in ASPs expected in the quarters ahead due to the Euro. Among the companies who will benefit from the low price are Suntech Power, Canadian Solar and Sunpower, to name a few.


4. Both US presidential candidates vowed to boost solar power.
   
   This is a monumental event for the solar industry as this may reform the world’s largest economy into the largest solar energy market. The US has created a base for the solar industry by passing an 8 year solar tax credit last month. With leadership from Obama or McCain, solar is set to grow in the coming decade.
   
   In summary, we are facing a once in a lifetime opportunity to invest in the solar sector. Among the top companies are Suntech Power, First Solar, and Sunpower Corp. If Obama takes office in January 2009, solar and other renewable energy sectors will start a serious run. The next 10 years are well braced for a solar boom.

Disclosure: Author long FSLR, STP.

Related Posts :

1. More Downside Ahead for Solar
2. Energy Funds and Stocks Will Move in the Opposite Direction Against Swinging Oil Prices

Sources :

Seeking Alpha: Four Reasons to Expect a Solar Boom, November 04, 2008

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