Investing in Solar Energy ?
We currently cover three companies in the solar market: Evergreen Solar (ESLR), SunPower (SPWR) and Suntech Power (STP). Although we believe that a balanced energy technology portfolio should include all three companies, we would prioritize purchases in the following order:
1. Suntech Power: Of the three, we are most attracted to Suntech due to its low-cost structure. We believe that reducing ASPs will be essential to growing the industry and are therefore inclined to favor companies with the most margin leverage. We expect that Suntech will be most likely to lead pricing declines, helping to cement its position as one of the industry’s leading players. In addition, we expect that China will emerge as one of the largest and most important markets for solar within the next few years. Suntech’s position in China should give it the best advantage to be a leader in the local market. Suntech has both new company and Chinese company risks, but we believe that the opportunity outweighs the risks.
2. Evergreen Solar: We continue to like Evergreen Solar based on its proprietary string-ribbon manufacturing technology, which uses less silicon and incurs lower processing costs than standard wafer manufacturing techniques. Evergreen’s growth opportunity through its EverQ joint venture is impressive, although the recent addition of REC changes the profile significantly. While REC lowers execution risk, its share of the joint venture reduces the profit potential for Evergreen. We are assuming that the company has other growth opportunities that have not been disclosed yet to make up for this decrease. Obviously, this assumption raises the risk to our estimates.
1. Suntech Power: Of the three, we are most attracted to Suntech due to its low-cost structure. We believe that reducing ASPs will be essential to growing the industry and are therefore inclined to favor companies with the most margin leverage. We expect that Suntech will be most likely to lead pricing declines, helping to cement its position as one of the industry’s leading players. In addition, we expect that China will emerge as one of the largest and most important markets for solar within the next few years. Suntech’s position in China should give it the best advantage to be a leader in the local market. Suntech has both new company and Chinese company risks, but we believe that the opportunity outweighs the risks.
2. Evergreen Solar: We continue to like Evergreen Solar based on its proprietary string-ribbon manufacturing technology, which uses less silicon and incurs lower processing costs than standard wafer manufacturing techniques. Evergreen’s growth opportunity through its EverQ joint venture is impressive, although the recent addition of REC changes the profile significantly. While REC lowers execution risk, its share of the joint venture reduces the profit potential for Evergreen. We are assuming that the company has other growth opportunities that have not been disclosed yet to make up for this decrease. Obviously, this assumption raises the risk to our estimates.
3. SunPower: We initiated coverage of SunPower with a Hold based on valuation. We like SunPower’s technical leadership and believe that its high efficiency products will continue to be market leading. Although we believe that SunPower’s manufacturing process is more expensive than others, the high efficiency of SunPower’s products allow for more energy production from a smaller amount of materials. As with Suntech, SunPower has new company risks as a newly public company. Unfortunately, we believe the stock is ahead of itself and we will be watchful for a better entry point.
http://energystockblog.com/article/5512
posted by Oil Shock at 12:39 PM
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