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Solar Stock Swingers: Energy Conversion

Stocks in this article: ENER JASO STP SOL

Energy Conversion Devices increased revenue , narrowed its quarterly loss, and decreased its cash burn rate -- however, the company is still in a cash-burn situation. "It's disappointing that they are still at a loss, but it's getting better, and it was a good quarter in general, but the biggest question mark is the same: finding demand for their niche product," said Burt Chao, analyst at energy market specialist Simmons & Company. "You can't flip a switch overnight, or over one quarter, and go from being a non-profitable company to a profitable one, but at least Energy Conversion is conservative and has not overpromised," the energy analyst added.

Wedbush Securities made much the same kind of concession in its view of Energy Conversion Devices in its post-earnings wrap. "We believe ENER is making progress but will likely continue to struggle as oversupply conditions resume in 2011 and demand for niche products like flexible BIPV remains below expectations.... We do believe the company is making progress on its turnaround efforts given its 200 megawatt project pipeline and increase in factory utilization."

Nevertheless, Wedbush took down its price target on Energy Conversion Devices shares from $7 to $6.

The U.S. solar company also noted that its focus on the 200 MW project pipeline will result in "lumpiness" to earnings, as it will be difficult to provide a timeline for when the projects hit -- and, even more importantly, the project business has the ability to soak up working capital and cash, something that a company already in a cash burn situation needs to watch closely. "We need to manage cash and we have to be clever in how we approach the project business," Energy Conversion Devices management said on the conference call.

A Citibank analyst, Tim Arcuri, noted to Energy Conversion Devices management that by his estimate, even with a decreased cash burn rate, the solar company will be at a level of less than $100 million in cash within six to nine months.

In response, the solar company's management said it has no plans to tap the capital markets again, and that it was looking at financing deals that would aggregate a number of smaller solar projects of the type in which it specializes into financing pools that could be attractive to investors. Still, the company was not ready to provide any details. "The trick for us is financing," Energy Conversion Devices management said, but the trick was still up its sleeve as far as how much it was willing to share with analysts.

Energy Conversion Devices, which has been running at 25% of capacity, will be at 50% of capacity in its next quarterly report. Even getting to 100% capacity will not alone result in the cost reductions that the solar company needs to become more competitive, Energy Conversion Devices management conceded on the conference call.

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