Stock prices for the solar PV makers have fallen by -40% to -80% in the past 12 months, with the bulk of the crash occurring since May. The collapse is due to an oversupply of manufacturing capacity that was predicted almost exactly a year ago. The solar makers have stopped being viewed as growth stocks, but are they really as bad as their current share prices would lead one to believe?

The poster child for the solar sector has long been First Solar Inc. (NASDAQ: FSLR), which posted a 52-week high of $175.45 in February. SunPower Corp. (NASDAQ: SPWRA) posted its 52-week high when French energy company Total SA (NYSE: TOT) acquired 60% of SunPower’s stock at a substantial premium. Like First Solar, Chinese solar PV makers Suntech Power Holdings Co. Ltd. (NYSE: STP), JA Solar Holdings, Co. Ltd. (NASDAQ: JASO), Trina Solar Ltd. (NYSE: TSL), and LDK Solar Co. Inc. (NYSE: LDK) posted yearly highs in February.

As panel prices continue to decline, inventories continue to build as orders from Europe continue to slide. A year ago European markets accounted for 78% of global demand for modules in the third quarter; this year the Europeans accounted for an estimated 58% of demand. Demand in China and the US has grown, but not fast enough to make up the difference. As a result, module prices are now down to about $1.09/watt for crystalline solar-based modules.

First Solar’s share price hit a 52-week low of $55.68 before recovering to nearly $65, but the story is in the valuation of the company. The earnings multiple for the trailing 12 months is 10.75, and the forward multiple is 5.94. SunPower’s trailing P/E ratio is near 30, while its forward P/E ratio is 6.63. Suntech’s trailing P/E is a mere 2.85 and its forward P/E is 7.94. JA Solar’s trailing P/E is a minuscule 1.38, and its forward P/E is 3.72. Trina’s trailing P/E is 2.14 and its forward estimate is 5.02. LDK’s trailing P/E is 1.67 and its forward P/E is 7.12.

As investors have re-set their growth expectations for the solar makers, share prices and earnings estimates have tumbled. It had to happen some day, but the punishment seems excessive. It’s as if investors are crushing the shares now because they couldn’t bear to believe the projections on over-supply that started coming out last year.

For the just-ended quarter, the consensus EPS estimate for First Solar have dropped from $2.85 three months ago to $2.68. The EPS estimate for SunPower has dropped from $0.39 to $0.08. Suntech’s EPS estimate has fallen from $0.21 to a loss of -$0.18, while JA Solar’s earnings estimate declined from $0.22 to $0.05. The EPS estimate for Trina has fallen from $0.89 to $0.32 and the estimate for LDK has dropped from $0.40 to an EPS loss of -$0.09.

LDK and Trina have been hit with some accounting issues, and JA Solar and Suntech have overbuilt capacity. Sunpower’s share price was boosted by Total’s investment, not on anything organic to Sunpower’s operations.
Only First Solar has stayed close to its EPS estimates of three months ago. The estimate is down by about -6% while the share price has dropped by nearly -50%. That seems like a bit of overkill.

First Solar appears to be getting punished for being the best house in a bad neighborhood. SunPower’s rise had little to do with its operations, so its fall is less surprising. The low-cost Chinese makers made their choice to expand a year ago and couple with their accounting issues probably deserve the black eye they’re getting now.

An hour before noon today, these stocks are getting a little boost from the overall rise in the markets today. First Solar shares are up about 2.5%, to $62.35 in a 52-week range of $55.68-$175.45. SunPower’s shares are up more than 1%, at $7.87, in a 52-week range of $6.60-$23.36. Suntech’s shares are up more than 3%, at $2.46, in a 52-week range of $1.70-$10.83. JA Solar shares are up about 0.5%, at $1.90, in a 52-week range of $1.46-$10.24. Trina’s shares are up more than 4.5%, to $7.88, in a 52-week range of $5.28-$31.89. LDK’s shares are up more than 3.5%, to $3.42, in a 52-week range of $2.55-$15.10. The Guggenheim Solar ETF (NYSE: TAN) is also up about 1.85%, at $3.29, in a 52-week range of $2.84-$9.34.

Paul Ausick

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