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RGS Energy Fights to Leave SolarCity's Shadow

NEW YORK (TheStreet) -- When it comes to solar energy stocks, the sun doesn't shine equally.

We first recommended Real Goods Solar (RSOL) Oct. 11, 2013, and published our first report on Jan. 5, 2014. Since our original recommendation the company, which began trading as RGS Energy (RGSE) Monday, has appreciated by 54%.

Based on our conservative estimates, RGSE has another 132% upside. Its stock is down nearly 2% Monday but for the year to date it is up 23.5%. The S&P 500 is up only 4.9%, by comparison.

RGSE is expecting sales to reach $132 million in 2013. Management has done a great job increasing operating efficiency while the operating margin of its big competitor, SolarCity (SCTY), continues to rack up losses with the prospects of future returns. SCTY's biggest shareholder is Elon Musk, Tesla's (TSLA) CEO.

SCTY trades on an EV/Sales multiple of 47 and RGSE trades on an EV/sales multiple of 1.63. The massive discrepancy is unwarranted and RGS Energy should trade on a much higher multiple.

Assuming an extremely conservative EV/sales multiple of 3 -- still 1/16th the multiple the market places on SolarCity -- RGS Energy would be valued at $9.22 per share, or 132% upside.

RGS Energy is a residential and commercial solar energy engineering, procurement and construction firm. The company's solar energy systems use high-quality solar photovoltaic modules from manufacturers such as Canadian Solar and Trina.

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