Citigroup’s Timothy Arcuri this morning launched coverage of the solar sector, starting First Solar (FSLR) with a Buy rating, SunPower (SPWR) with a Hold and Evergreen Solar (ESLR) with a Sell.
His broader position is that there’s a shakeout coming in the industry. He sees another few quarters of “benign pricing,” and then a decline of 20% in 2009 and even more in 2010. He sees risks to subsidy programs in Germany and Spain, and cautions that there will be a big ramp in solar supply starting in 2009, and worsening in 2010.
In fact, Arcuri thinks we are headed for more than 60% over-supply of solar cells in 2009, with as much as 100% excess in 2010. In the shakeout he expects will follow, manufacturers with sustainable manufacturing cost advantages will stand out, “driving big divergence in fundamentals,” he says.
First Solar, he says, should reach cost parity with the power grid in 2012, two years before its peers, while maintaining gross margins above 50% through 2010. He thinks the stock’s earnings power is still under appreciated. He set a $450 target on the stock.
SunPower, Arcuri says, will be a survivor. He thinks the company will benefit from lower silicon costs, vertical integration and a model that “appears conservative.” But he also says the company will be challenged offering “premium product in a commodity market.” He set a $105 target ont he stock.
Evergreen, he says, is short on both time and money. Arcuri says the company has “heavy capital needs,” estimating it will require $2.2 billion from 2008-2012 to drive its String Ribbon approach into wide scale manufacturing. Peak earnings of $1 a share suggests downside to $5, he writes. “The Street is negative, and sometimes the crowd is right,” he says.
- First Solar today is up $6.30, or 2.3%, to $282.10.
- SunPower is down 68 cents, or 0.8%, to $83.
- Evergreen Solar is down 56 cents, or 6.3%, to $8.34.
