In this article, we will provide you with financial fundamental analysis of the twelve largest solar-related companies on American stock exchanges. For each company, we have provided price targets, buy/sell/hold ratings, buy/sell ranges and theses. Additionally, using a multitude of financial analytical ratios and comparisons, we have given each company a score on growth, profitability, financial health, value, and management indices to compare each company and see where companies excel and where they have weaknesses.
The breakdown of the story is our solar sector heat map, indices, and company profiles. We have investigated Trina Solar (TSL), Yingli Green (YGE), GT Advanced (GTAT), JA Solar (JASO), Canadian Solar (CSIQ), LDK Solar (LDK), ReneSola (SOL), JinkoSolar (JKS), First Solar (FSLR), Suntech Power (STP), SunPower (SPWR), and MEMC (WFR).
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Indices
Company Profiles
First Solar (FSLR) - Rating: Buy, Price Target: $52
Radar:
Thesis:
First Solar has been the definitive leader in solar power for quite some time due to its production efficiency. Yet, over the past two years, the situation has turned dire for First Solar and the issues with pricing have not spared the company as it's seen margins squeezed from as high as 35% in operating margin in 2008 to negative in 2011. The company has seen a significant amount of management jumbling as well, but the company still seems to have some potential.
First, the company has technological advantages. The cadmium-telluride thin-film process uses less steps and less energy, resulting in price per watt (PPW) that remains high. The company also is not subject to shifting silicon prices since it uses cadmium. And while efficiency has often been the issue for FSLR, that is improving. Many silicon producers filled the gap in PPW and upped efficiency that the savings for FSLR in thin-film dried up over the past two years.
One place the company also rated very high for us was in valuations. The rating on Value is compared to others and we see FSLR's 0.8 price-to-sales ratio is very low. Further, the company has a forward PE of just fewer than 6. The company had a rough year in 2011 and is going to see income squeezed again this year, but we believe nearly all negative issues are priced into the stock at this point.
JA Solar (JASO) - Rating: Hold, Price Target: $2
Radar:
Thesis:
JA Solar was one of our favorite stocks last year, and it still scores well compared to its competitors. Unfortunately, the mayhem of subsidy cuts, silicon fluctuations, and more have made JA Solar just another solar company getting pushed and pulled. The company saw its profitability destroyed by material costs, but it does score well in many other areas.
The company is still in growth mode, and if it can turn profits around, this stock may be a tremendous opportunity. The company, in the long run, is in the higher margin solar cell business, which is attractive. Yet, the stock has seen a complete run on its share prices. The company sells for 0.2 price to sales, which is absolutely rock bottom pricing.
Right now, you have to say… either JA Solar is going bankrupt and towards 0, or it is going up. These are really the only two options now for the stock. All issues through 2012 are priced into the stock, and we believe that JA Solar is one of the best values in a solar market recovery.
At this time, JA Solar is still at the whim of changing markets and has not shown (like some other companies) to be able to remain profitable despite subsidy cuts, raw materials rises, and other issues. There is a ton of risk there. Until we see actual turnarounds in profitability, we cannot buy, but the JASO situation appears to be one of the best speculative opportunities.
GT Advanced Technologies - Rating: Buy, Price Target: $16
Radar:
Thesis:
GT Advanced Technologies is another emerging company in the industry that stands out as a company that will grow with the solar industry as the company provides technology, ingots, and other services to solar companies. We believe GTAT is only one of three possible buys in the industry and is probably second strongest behind Trina Solar.
One of the biggest positives for GTAT is that it is not strictly a solar company. Rather, it makes parts that are used heavily in solar production as well as LED lights. The company scored very well on all categories other than financial health, which was hurt by the company's more recent additions of debt loads.
The company is producing good profitability that is improving every year, and it can maintain strong levels despite the fluctuations of the solar industry because its prices can remain stagnant. Many solar companies are still producing at a high level, despite issues with pricing for key raw materials. Those issues do not influence GTAT, which is another strength for the company.
We believe GTAT offers incredible value. We predict the company will be growing revenue at 10%+ in 2012, and its margins are still improving. Further, GTAT is actually making money compared to other solar companies. Despite that, GTAT still has a 0.5 PEG ratio and 5 forward PE. GTAT is at a great place to buy!
Trina Solar (TSL) - Rating: Buy, Price Target: $17
Radar:
Thesis:
Trina Solar has long been one of the favorites of The Oxen Group, and it is the top scoring company in our EquityAnalytics system, which represents a solid fundamental backing when compared to its peers. What makes TSL a buy and continues to remain the reason we like the company is its highly competitive low-cost process. TSL rivals FSLR in the sense that it has created a low cost per watt process as well, during production.
The issue for TSL has been that the module market has been going through a severe pricing war that has seen prices drop significantly. Low-tier companies are trying to liquidate product at very low levels that TSL cannot match or does not want to match, causing higher levels of inventory and lower levels of profitability.
The company, though, had good shipment levels in Q4 and projected strong shipments for Q1. Additionally, its technology remains superior. We believe that when the consolidation process shakes out, TSL will still be one of the top dogs in the industry. We may continue to see strained profitability levels throughout 2012, but these values suggest that.
The company is trading at a mealy 0.25 price to sales ratio, and it cannot get much lower. Revenue will likely dip in 2012, but we believe we will see this company making headway towards the end of this year into next and believe this is a great opportunity to buy TSL.
JinkoSolar (JKS) - Rating: Buy, Price Target: $9
Radar:
Thesis:
We were high on JKS last year, and well, the stock was hit just like all the rest. In fact, size and sheer production capability has been crucial to the market over the past year. JKS is one of the smallest firms in the industry, and that hurts during consolidation periods like we are seeing.
With that said, the company is going to continue to lose money over the next year to two. Yet, we are believers that this company is running things correctly and is setting up for the future. As we have noted, the module business is very much commoditized and the large amount of supply on the market has killed prices and thus caused companies like JKS to lose money.
Yet, at this point, the company is really at the bottom of the place it can go. JKS is trading at 0.1 price to sales, and it is growing rapidly. Despite JKS' issues, the company is still growing sales at +300% and income at an alarming +500% rate in the TTM.
The company is engaged in expansion right now, and we believe that coming out of the crisis, JKS will be an attractive growth play in the industry from an organic growth perspective. Further, we are not sure how much lower it can go past 0.1 price-to-sales, so we see this as a great Value here. The company's movement into solar projects is also crucial to future margin growth.
ReneSola (SOL) - Rating: Sell, Price Target: $2
Radar:
Thesis:
ReneSola is similar to the situation of LDK Solar in that it makes wafers and that is a business that we see as having limited upside from these areas. The company did score pretty solidly around the board on our EquityAnalytics, but this is in comparison to other solar companies.
We see SOL as pretty much fair valued at $2. The company might not see profitability until 2014 at the earliest. It is more likely that it will be bought out by some module maker for its wafer and ingot business before then.
The company's latest quarter was not a sign of good things to come as well. The company saw revenue decline, and the shipment increase might not even mean a repair of revenue as the company is moving to China and India for its wafer business and flooding those markets with more MW. The issue is that the companies already do not offer the type of margins that are attractive.
SOL is stuck much like LDK and many other solar companies right now as the industry consolidates and continues to rectify what its future will be.
We would not be betting on SOL over other companies that have brighter futures and we cannot see any reason to invest in SOL at this time.
Yingli Green (YGE) - Rating: Buy, Price Target: $7
Radar:
Thesis:
We have to change our tape on YGE. We had a sell rating on the company last year at this time, and YGE has done a great job over the past year. We now see the company as one of the more fundamentally sound companies in the industry now.
YGE is right there with Trina as one of the best in producing cheap but efficient modules that are able to do battle in the highly commoditized business. We prefer the leaders in the module business in the industry and YGE sits as a leader in that area. We like TSL, GTAT, and FSLR above YGE, but the company sits in a second-tier of companies we believe are decent speculative and value plays, along with JKS, CSIQ, and STP.
The company is looking at increasing its MW production in 2012, and we see it back to profitability in 2013. At this point, the stock is at rock bottom prices. YGE operates at 0.2 price-to-sales, which is about as low as it gets. It is also seeing a 50%+ jump in shipments in 2012. That is a good sign that it has business for that much more MW.
The margins on it may be very limited, but if the company continues to grow sales, it is a good sign for the health of the company as eventually prices and sales will meet a sweet spot.
We still would like to see some more consistency in the margin cuts before diving into YGE, but the opportunity is there for the company.
SunPower Corp. - Rating: Buy, Price Target: $23
Radar:
Thesis:
What an about face SunPower has done in the past year since its Total (TOT) acquisition. The American company that specializes in very efficient module and systems producer was a solid niche stock in the market, but in the past year, it has seen a lot of negative numbers start to hit the company.
SunPower rated as one of the lowest on our EquityAnalytics scoring system due to some hefty losses that the company has been taking on over the past TTM. The company should be back to breakeven by the end of the year, but we do not see a ton of upside for the company. SunPower continues to struggle due to its high cost of doing business to produce higher efficient panels that are not turning into consistent earnings.
The issue is that the module business has been commoditized and cheaper modules are available that offer less but not terribly less efficiency. That issue is causing a crisis for a company like SunPower which has seen its margins squeezed.
The positive for SPWR is that it does have the backing of Total, and the worst of the earnings glut may be over. Yet, until we see it breakeven and be able to improve margins again, we would not be a buyer.
Disclosure: I am long GTAT, TSL.
Disclaimer: The Oxen Group are not licensed financial analysts or advisors. Our EquityAnalytics' reports are based on formulas created by The Oxen Group. These reports are investment ideas and are not recommendations of what one should buy, sell, or hold. The Oxen Group receives no compensation from the companies they investigate. Price targets are based on a discounted cash flow analysis from information that is thought to be reliable. Price targets are subject to change as well as ratings. Please consult an investment advisor about any possible investments you would make from EquityAnalytics.
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