Solar Winners: Yingli, Suntech, Power-One

Solar stocks rebound modestly to end the week, and there are some notably buy calls amid an uncertain 2011 outlook.
By Eric Rosenbaum ,

NEW YORK(

TheStreet

) -- A flurry of ratings activity from Wachovia Securities on Friday highlighted all the recent pressure points for the photovoltaic industry: euro weakness, fears of 2011 oversupply conditions, increasing political blowback in Europe, and fears that steep price declines will severely hit all but the most insulated solar companies from China, insulated by way of their existing low cost structure and level of vertical integration.

The thesis wasn't new in supporting a valuation raise on

Yingli Green Energy

(YGE)

from $11-$12 to $12-$13, and an overall rating of outperform. It won't take the proverbial "heroic" effort for Yingli to reach that level, either: Yingli shares were trading above the $13 on Nov. 9, before the latest round of euro tremors sent the sector into a tail spin.

Yingli Green Energy may have been helped just as much by the announcement late on Thursday that the Chinese government was awarding to Yingli 70% of the 272 megawatt in Golden Sun program subsidized solar projects for 2011, with the majority of the estimated 190 MW of shipments scheduled for the second half of 2011.

Yingli's rise of 5% on Friday was the biggest among solar stocks, but even with the analyst upgrade and Golden Sun business,

Trina Solar

(TSL)

was up by almost the same amount. As were

ReneSola

(SOL) - Get Report

and

Suntech Power

(STP)

.

Wachovia called out Trina Solar and ReneSola as its other two main "defensive" solar plays headed into 2011. Suntech Power isn't a cost leader, but an upgrade from Auriga Securities on Thursday and reports that the Chinese central government was starting a new round of subsidy support for its solar manufacturers including payment for up to 50% of equipment on solar projects were good enough to propel its shares higher over the last two days of the week, and up by 5% on Friday also.

Friday's action in Chinese solar stocks seemed to be more of a typical relief rally than any one call, with the euro holding steady, the markets rebounding, and some sell recommendations made by Wachovia going unheeded. Wachovia downgraded

JA Solar

(JASO)

to a sell, but JA Solar finished up 4% on Friday.

In fact, there wasn't a Chinese solar stock that finished the day down in trading on Friday. And among the big winners like Yingli, Trina, Renesola and Suntech Power, Suntech is the only stock that was not down by double digits in the past month. Suntech was the only of the Chinese solar stocks up more than 10% in the past week. Market resurgence + euro cutting of its losses = resurgence from momentum Chinese solar stocks that have been trading at short-term lows. The best week for the market in a month should be a decent week for solar also. Trina Solar, though, still finished the week at a share price lower than where it began trading on Monday.

The past week also featured the lowest share value since 2007 at which the Walton family of

Wal-Mart

(WMT) - Get Report

fame has sold part of its huge stake in

First Solar

(FSLR) - Get Report

. Insider sales tracker

Insiderscore.com

noted of this week's Walton family sale of First Solar that it was the Walton's largest single-day sale on a per-share basis in well over a year and came at the lowest price at which it has sold since August 2007. For the recent sale, the Estate also stepped outside its 10b5-1 plan to sell for the first time since February 2008.

"We suppose there could always be capital gains-related issues involved. That being said, any time an insider breaks pattern, as is the case here, we're going to take notice. But, we're going to do a double-take when one breaks pattern to up selling and does so on sector-wide weakness as shares are taking a beating,"

Insiderscore.com

wrote of the First Solar sale.

Trading volumes on Friday were, overall, average or below average. It was JA Solar, downgraded by Wachovia, which was well above its average daily volume on Friday, suggesting that maybe it was simply a "solar is oversold" sentiment that was at play.

All the recent rating action in solar is, in one way or another, a bet on the thesis that prevails in 2011, or the risk that overwhelms the solar stocks and leads to some dancing, triumphant bears.

In the latest ratings action, it's either the bears not seeing the forest for the trees, or seeing the survivors amid a denuded landscape. Trina and Yingli are examples of the latter, while Suntech optimism comes more from the "it just can't get any lower" category of stock optimism.

As far as the bears simply missing the mark, a Friday upgrade from Piper Jaffray on solar inverter company

Power-One

(PWER)

was a prime example.

Power-One has been one of the more heavily shorted stocks in solar, and primary among the reasons to be negative on the stock has been fear that its European-based business is due for a big slowdown in 2011, and it can't make up the difference elsewhere. Piper Jaffray inverts that argument in its upgrade of Power-One to buy and its price target of $14.

Piper Jaffray argues that Power-One's more than 50% share of the "safe" European market of Italy has been a primary mover in its move up to a 17% share globally of the inverter market in 2010. The Italian solar market is estimated to grow 33% year over year in 2011, according to the PJC estimate. For bears who believe in the Power-One doomsday scenario based on the falloff in Germany business, regardless of how Italy performs, and cite Power-One lack of penetration in the U.S. market, Piper Jaffray argues otherwise.

The U.S. solar market is expected to grow 50% year over year in 2011, and that's going to include some of Power-One's largest German customers targeting the U.S. market. That's a silver-lining if there ever was one on the demand slowdown in Germany. Overall, Piper Jaffray estimates that Power-One's global inverter market share increases from 17% to 26% in 2011.

All Power-One needs to do, by Piper Jaffray's reckoning, is maintain its market share in a declining German market, while growing elsewhere will more than make up for the difference. Power-One doesn't even need to grow its market share in the U.S. and China that substantially year over year, it just needs for these markets overall to grow by the optimistic assumptions of 100% growth (China) and 50% growth (the U.S.).

"We estimate the a drop-off of ~400 MW in shipments in Germany to be more than offset by an additional 550 MW in Italy and the 400 MW from China and the U.S.," Piper wrote in its Power-One upgrade. Power-One shares didn't get much of a run on Friday, but were up 14% this week. Then again, it wasn't such a heroic effort to eclipse the $10 mark where Power-One shares were trading until the euro sank the solar sector mid-month.

In the end, even among the bullish calls in Friday's rating action, there was an undercurrent of acting on the ever-present fears about 2011 and what will be the primary culprit in limiting the solar sector from reaching its stock potential.

In shining a light on Yingli, Wachovia Securities pointed to all the problems that will bedevil all but the lowest cost producers. In betting on Power-One, Piper Jaffray said that the big falloff in the German market is much ado about nothing when it comes to a company on the right track and with solar -- and growing -- share in a handful of key 2011 markets.

Indeed, the latest push back against the bear thesis in solar, during a week when German and French politicians were making the kinds of comments that are a worst-case scenario for solar companies -- both countries talking about annual caps on solar, and with France seemingly ready to act without the usual year-long political squabbling in Germany -- raises the same set of questions even for those making bullish bets on solar.

A bullish bet on Power-One, according to Piper Jaffray, is a bet on the continued growth in the U.S., China and Italy.

A bullish bet on Yingli is a bet on the oversupply conditions giving further leverage to the low-cost producers.

A bet on Suntech Power is a bet on a company that has seen its share value decline 50% this year, and seemingly has plenty of room for upside if the solar market doesn't crash.

Indeed, all the silver-lining scenarios playing out the recent round of ratings raise the question, are any of the recent bullish calls your bet for the next solar sector outperformer? Take our poll below to answer that question -- and to see what the consensus of

TheStreet

is.

-- Written by Eric Rosenbaum from New York.

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