In just four weeks, the target prices of three of world’s leading makers of solar PV modules have fallen by at least -30%. The drops have coincided with falling forecasts from the manufacturers themselves and an even bleaker outlook on the part of sector analysts. We’ve focused on three makers as indicative of the problems of the entire sector: First Solar Inc. (NASDAQ: FSLR), SunPower Corp. (NASDAQ: SPWR), and LDK Solar Co., Ltd. (NYSE: LDK).

First Solar posted a 52-week high of $175.45 in mid-February, and the stock is trading around $44 today. The median target price for the stock is $56.00, down from $108.50 on October 24th, a decline of -52%. At today’s target price and today’s share price, the implied upside for First Solar stock is 28%. The company’s forward P/E is 5.84, only a bit less than the 5.97 of a month ago.

SunPower, which has combined its A and B shares into a single issue, has a median target price of $9.00, compared with $13.00 a month ago, a drop of -30%. The stock’s 52-week high is $23.36 and it is trading today at $6.94. At today’s target and share prices, the implied upside for SunPower stock is nearly 30%. The company’s forward P/E is 15.8, compared with 9.28 on October 24th.

LDK Solar has a median target price of $2.60, compared with $5.80 a month ago, for a drop of -55%. The stock’s 52-week high is $14.97 and it’s trading today at $3.40. LDK has already surpassed its new price target, indicating, perhaps, that analysts were too negative in their outlook for the company.

The reason for LDK’s better-than-target price has got to be the belief among investors that the stock has hit bottom and can’t fall any further. That says nothing really about when the stock might turn around its dismal performance permanently.

Unlike LDK, both First Solar and SunPower are both about 30% below their new target prices. But does that indicate a value play or a value trap? Like LDK, the market appears to have called a bottom on these stocks, both of which posted 52-week lows since late October.

In each case, the stock has been beaten down so badly that everything looks like up. There could be an opportunity in First Solar’s stock, as its forward P/E indicates. SunPower appears to be fully valued with a forward P/E of nearly 16.

None of these companies is as bad as its current share prices would indicate, but how long it takes them to recover is a different issue. There’s little expectation that 2012 will be much of an improvement on 2011. For investors willing to wait until 2013 the outlook is better, mainly because next year is expected to see the demise of more solar PV makers. Still, because more than half of all solar panels are made in China, the manner in which the solar market consolidates really remains an unknown.

Paul Ausick

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