SunPower Corp. (NASDAQ: SPWRA) has made what may be one of the first decent sized mergers in the solar sector.  The company agreed to acquire SunRay Renewable Energy in Malta for $277 million.  The equity purchase was $235 million in cash, the rest as a letter of credit. Just last year, SunRay received a $200 million equity commitment from Denham Capital.

We have been expecting consolidation here in the solar sector.  It is a hot sector as far as what will get backing and funding from the Obama administration.  There are many players, and the U.S. companies need larger scale and leverage to better compete against the Chinese solar stocks.  And they have to do whatever they can to get back to or to stay profitable.

In any buyout scenario if any sort of solar mergers were to come up, First Solar Inc. (NASDAQ: FSLR) is the big kahuna.  It would be a buyer unless for some reason a traditional oil or gas company decided that they really wanted to compete again BP plc (NYSE: BP) for its large solar initiative.  It is possible, just unlikely because of valuations.  The company is under a new CEO with a solid reputation, but even with a $9.6 billion market cap the stock is way from highs.

JA Solar Holdings Co., Ltd. (NASDAQ: JASO) is one of the stocks which has helped to boost the solar sector today as well.  The company managed to beat earnings and raise its shipment forecasts for 2010.  Earnings were $0.14 EPS vs. $0.11 EPS estimates and revenues rose 23.5% to $238.4 million versus $213.5 million consensus (Thomson Reuters consensus).  It now expects shipments to exceed 900MW for 2010, above prior guidance in the range of 750MW to 800MW.  Shares are up 8% at $5.04 on over 600,000 shares.  This one may not be a takeout candidate, but it is one of the solar catalysts today.

Energy Conversion Devices, Inc. (NASDAQ: ENER) went from one of the big heroes in this sector to be of the big zeroes… At $7.82 the stock is very weak.  This is one of the players that has been rumored to be a buyout candidate before.  It does not matter that the year high is above $29.00 nor does it matter that it hit $80 in 2008… but the problem is that a low premium won’t get approved by shareholders no matter what it means based on today’s valuations.  There are simply too many holders here who are ‘long and wrong’ in their bets.

LDK Solar Co. Ltd. (NYSE: LDK) is another name that has come up before as a rumored buyout name.  But it is based in China and the company has had some rather obscure issues, and accusations have long been a voice against this company.  If LDK were ever a real takeout name, it is too difficult to offer a buyer’s name based upon what we have seen at this stock.

GT Solar International, Inc. (NASDAQ: SOLR) is another name which we feel could be in the realm of potential targets.  It is on the equipment side and the supply side of the solar equation.  It was also one of the last of the wave of solar companies to come public.  Whether a deal can be done, the company is young and there are too many variables here to count.

Another name which has come up is MEMC Electronic Materials Inc. (NYSE: WFR).  This is a PV wafer materials maker, but it is mostly in semiconductors.  The company has fallen from grace, but things seemed to have grown less-cold for it of late.  I can recall an email from Broadpoint AmTech this week with a “Buy” rating and $21 target based upon margins resuming there.

Today is a strange day in solar stocks.  The trends continue to be unfavorable for the sector if you back out the subsidy and stimulus packages that these and peers have been the beneficiary of.  Oil has to be rising steadily for the investment community to get back on to the alternative energy bandwagon in full swing, and a better economy would help.  That being said, there are some companies which could be rolled up or added as niche plays.  The problem is that there seems to be very few natural buyers, or at least natural and willing buyers.

JON C. OGG
FEBRUARY 11, 2010

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