Lazard Clarifies Evergreen Solar Capital Raise, Maintains Buy Rating (ESLR)

Evergreen Solar (NASDAQ: ESLR) is a stock that has been under pressure after the company announced huge orders but then immediately turned around with a huge convertible note offering.  The offering wasn’t a damning one because it was being used for factory expansion to increase its capacity, but it did come after a large move that left many shareholders feeling like they were suckered in.

This morning Lazard Capital Markets’ Sanjay Shrestha has maintained his BUY rating and his $15.00 price target on Evergreen Solar.  What is perhaps more interesting than anything is that he is clarifying some of the uncertainties from that "capped Call" issue in this.  While these can be good, they frequently confuse shareholders. 

The $325 million in gross proceeds is after the inclusion of additional funds from that over-allotment option which was exercised.  The 4% convertible notes are said to have a $12.11 conversion price, but because the capped call is in place Shrestha notes that this technically is not dilutive to current shares until an effective $19.00 price.

Shrestha’s $15.00 price target reflects 20-times earnings of $0.85 EPS for ESTIMATES 2010 Earnings, discounted back 15%.  Shrestha concludes, "With near-term capital raise overhang behind the company, strong sales pipeline ($1.7 billion supplied by Evergreen and $850 million supplied by EverQ), excellent silicon position, and improved visibility on path to profitability, we believe ESLR represents a solid medium-term investment opportunity for small-cap investors, with an attractive risk/reward.

Jon Ogg
July 9, 2008