Tuesday, June 14, 2011

Lazard: "Solar Stocks Don't Reflect Upside Potential" (FSLR; TSL)

From Barron's Investors' Soapbox (June 10):

First Solar is at an attractive risk/reward valuation.
Trina Solar is a compelling buy.
Lazard Capital Markets
We have attended the Intersolar conference in Munich over the past two days and have met with market participants across the value chain -- public/private module manufacturers, upstream wafer/silicon producers, and downstream project developers/distributors.

Our key takeaway from the conference thus far: While pricing discussions across most of the value chain are still short term in nature, market participants see the potential for fairly attractive returns at current pricing levels in key European end-markets. Current pricing dynamics still reflect the impact from clearing higher-than-normal inventory and customers' hesitation to order given declining upstream prices.

We see upstream pricing on silicon and wafers approaching our clearing prices for second-half 2011, with near-term module prices below our clearing prices for markets such as German and Italian rooftop markets.
We see relatively light new order flow from tier 2 / 3 players and module businesses of large conglomerates, and as highlighted in our industry bifurcation note (March 11) we see continued market-share gains for tier 1 players.

Increased price competition among the tier 1 players, including module businesses of leading upstream players, could keep prices at some discount to our clearing prices in the near term; we would expect pricing to converge to our clearing prices as key end-markets pick up and revert to normal ordering patterns in the second half. We expect the German market to post a strong June, and the Italian rooftop market to accelerate in the fourth-quarter 2011 timeframe. We also expect a second-half market rebound to result in a tighter supply-demand balance for tier 1 players, which should also lead to a more normal pricing environment.
We estimate market shipments of 7.5 gigawatts in first-half 2011, implying second-half shipments of 11.5 gigawatts, or 22 gigawatts annualized, against a bankable supply of 17 gigawatts....

...We continue to see attractive risk/reward in First Solar (ticker: FSLR) (rated at Buy) at current levels; we believe the company's industry-leading cost-reduction roadmap and large systems pipeline (over and beyond near-term projects) offer long-term earnings growth potential....

...Trina Solar (TSL) (rated at Buy), at sub-$20, offers a compelling buying opportunity, in our view; recent weakness in the stock can be attributed to the company's focus on capturing market share in a flat demand environment. While this will entail volume/price tradeoff, we do not share recent concerns that Trina will need to resort to large price discounting to meet its sales goals....MORE
-- Sanjay Shrestha

See also:
Trina to Be Price Competitive With First Solar by Next Year (TSL; FSLR)