Knobias Clip Report (04-07-2008)
Submitted By Knobias ClipReport
Solar Rally Dims on Profit Taking
Monday’s session started with a rally but saw it fizzle away as crude rose to highs above $109 and investors braced for the beginning of the second quarter earnings season. The financials saw their rally come to a halt even with the huge gain posted by Washington Mutual on the news of a $5 billion cash infusion reportedly from the private equity group, TPG.
Also seeing some profit taking were the solars. Names in the sector had experienced a rally in 9 out of the last 10 days. Causing the jump was news that the Senate had introduced bipartisan renewable energy tax credit legislation.
The bill which was expected to garner enough support to be enacted into legislation extended the commercial investment tax credit for solar and fuel cell projects for eight years. The bill would also extend the in service deadline through 2009 for geothermal, wind, biomass and hydropower facilities.
But more importantly the bill would remove the utility exemption. This greatly increases the size of solar’s market in the United States. Also helping the cause was a New Jersey plan that would more than double existing penalties on utilities that failed to meet the state renewable portfolio standard solar mandate.
SG Cowen noted that the measure would significantly enlarge the US solar market and reported that Energy Conversion Devices (ENER), Evergreen Solar (ESLR), Suntech Power (STP), and First Solar (FSLR) had the most exposure to the US market. Calyon reiterated Buy ratings on FSLR and Sun Power (SPWR) due to utility exposure. They echoed that U.S. utilities were turning to solar, which was a large opportunity. The same day Canaccord Adams said they believed FSLR’s management and business model were among the best of any PV company.
With the expectation of the bill’s passing, these names have seen huge rallies over the past few days. But with the majority of the focus on the domestic market, it also may be wise to check the international environment as well.
The second largest solar market in the world, Spain, also could be soon experiencing some legislative changes regarding its solar initiatives. The recent incumbent party win in Spain has also been seen as a positive for the sector. The reelection of the Socialist Party should result in more favorable tariff policies regarding solar with the current policy’s expiration in September.
One name to follow over the coming months could be Yingli Green Energy (YGE). The Company derives some 50% of its revenue from Spain and is currently undergoing expansion projects to increase its capacity to 400 megawatts by 2008 and 600 megawatts by 2009.
With a favorable outcome to the Spanish legislation as well as an emerging market capitalization in Italy, investors would certainly be wise to watch this name that is trading at a 22 forward P/E ratio compared to a 108 forward P/E on FSLR.
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