Is Energy Conversion Devices Finally a Buy? (ENER, FSLR, TAN)

The solar power business has had its ups and downs, with the downs prevailing lately.  Even meeting the modest EPS expectation of $0.09 for the current quarter might be challenging for Energy Conversion Devices, Inc. (NASDAQ:  ENER).  With the exception of solar sector leader First Solar Inc. (NASDAQ:FSLR), most of the solar players have been just been able to eke out a profit.

Even the Claymore/MAC Global Solar Energy (NYSE: TAN) solar ETF took a hit of more than 5% yesterday to $9.12 and its 52-week range is $4.65 to $30.79.  While this ETF holds foreign stocks that are often unlisted as US-traded stocks, Energy Conversion makes up almost 6% of this ETF’s weighting.

One of the company’s largest customers is having trouble getting credit, which is bad enough. But now, Energy Conversion says it will halt production at its Tijuana plant for four weeks and at its two Michigan plants, one for three weeks and the other for four. The company said the suspension will save $6 million in costs and is “due to uncertain near-term demand.”

Energy Conversion shares fell 20% yesterday, but are up more than 1% in pre-market this morning. Does that mean that investors think that now is a good time to buy the company’s shares?

It could be that yesterday’s closing price of $15.89 is just too low to resist. Until the production suspension was revealed the company was trading right around $20/share. The company was upgraded by three research firms in February and its mean target price is $20.04, with one target estimate as high as $35.  This stock briefly traded at $80.00 last year during the peak.

What will put some air under the shares is a turnaround in the construction business, particularly for commercial buildings. Until that happens, the $20 target price may be wishful thinking.

Paul Ausick
May 8, 2009