Evergreen Solar Oversold Ahead of Secondary Offering? (ESLR)

Evergreen Solar, Inc. (NASDAQ: ESLR)  has seen its shares hit harder than most of the other solar stocks this week.  On this last Monday  it filed to sell 20 million shares of common stock in a secondary offering.  At current prices this will represent roughly $200 million if the overallotment isn’t exercised.  What is interesting is that if you were looking for a use of proceeds, this is the best use of proceeds for an emerging solar company.  Proceeds are to complete Phase I of its development of a new manufacturing facility in Massachusetts, and to plan, construct and equip the Phase II of its development of this facility.  The remainder is "for general corporate purposes."

Frankly, this looks like a situation where the stock is oversold.  Is it fair to say a stock is oversold?  In a bear market like this feels and compared to past bear markets, we should all know by now that "oversold conditions" can continue over and over.  There are also no assurances that there won’t be any bad news.  Shares had already lost one-third of their value from the 52-week highs and shares have lost another 15% or so since the filing this last Monday.  The company already has its earnings recently behind it.  The one week stock performance is far worse than the overall solar stocks.  The only question we have is a director resignation from a week before whose reason for resigning was frustration with the Chairman & CEO.

Deutsche Bank is the lead underwriter, and co-managers are listed as Lazard Capital Markets, Pacific Growth, Simmons & Co., and ThinkEquity.  It appears this secondary will come early next week, although by now we all know that underwriting calendars are not set in stone.

• Lazard Capital Markets has defended this one before. 
• In December is was given the thumbs up from UBS.
• Real Goods recently filed to come public.

At current prices, this has a $1.04 Billion market cap.  Last quarter Evergreen generated $22.2 million in revenues and posted a slight profit.  It also issued its guidance for the coming quarter and already showed it forecast a loss for the coming quarter.   

Analysts have an average price target just north of $15.00.  We like the "use of proceeds" as this is being used to build the business.  This is the type of secondary offering that investors usually snap up.

Jon C. Ogg
February 8, 2008