Re-evaluating Solar Prospects for 2010 (FSLR, CSIQ, YGE, TSL, SOLF, STP, JASO)

After initiating coverage on eight solar stocks just over a month ago, Auriga Securities has now adjusted its estimates as a result of the falling euro. The eight companies it is covering include First Solar, Inc. (NASDAQ:FSLR), Canadian Solar Inc. (NASDAQ:CSIQ), Yingli Green Energy Holding Co. (NYSE:YGE), Trina Solar, Ltd. (NYSE:TSL), Solarfun Power Holdings Co. Ltd. (NASDAQ:SOLF), Suntech Power Holdings Co. Ltd. (NYSE:STP), JA Solar Holdings Co., Ltd. (NASDAQ:JASO), and SunPower Corp. (NASDAQ:SPWRA).

Auriga believes that demand from Europe will remain strong as module supplies are fully booked for the second and third quarters. The firm expects pricing to remain stable in the second quarter and to decline by 5% in the third quarter.

The big problem is that none of the eight firms is in a position to take advantage of the falling euro. The solar firms will be paid in euros, but the cost of goods sold will be denominated in dollars or renminbi, both of which are strengthening. Margins will be squeezed as a result. That’s a big problem because 70% of demand for modules comes from euro-based countries.

Auriga also made a couple of changes in its earlier ratings. It has upgraded First Solar from ‘Hold’ to ‘Buy’. The fall in First Solar’s share price has made iy an attractive entry point. Auriga paints a price target at $138, about $25/share higher than Friday’s close. That target is less aggressive than a mean target estimate by Thomson/First Call of $148/share.

The firm downgraded Canadian Solar from ‘Buy’ to ‘Hold’, citing a severe negative impact on margins as a result of the euro/dollar conversion rate. Auriga sets a new target price of $13, far below the Thomson/First Call mean target price of $22.99.

Auriga expects the earnings reports due from the other companies it covers to back up its view on demand for solar modules in the second half of the year. However, the securities firm also expects the solar makers to “be forthright with regard to exposure to the Euro and impact on margins.” And that’s the news to watch for over the next couple of weeks as these solar makers report earnings.

Paul Ausick

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