) -- Tuesday was a day on which the frenzied trading in solar stocks turned broadly negative, except in the case of

Hoku Scientific


. Hoku announced an amended agreement with



for its planned polysilicon plant in Idaho, and the news that Solarfun indeed would continue to fund the project, was a vote of confidence unlike any other that Hoku has had in...two months.

Hoku was up more than 20% in afternoon trading, and its volume was off the charts: more than 1 million shares traded versus an average volume of 83,000. The key issue for Hoku has for some time been the market's level of confidence in its ability to maintain a level of financing to complete the polysilicon plant and move to the production and shipping phase.

At the end of September, Hoku soared more than $1 in one day when it announced that

Tianwei New Energy Holdings

would provide a majority investment in Hoku and debt financing for the construction and development of Hoku's polysilicon production facility in Idaho.

On the Tianwei news, Hoku reached $3.36, though it quickly retreated to the $2 range as the financing outlook continued to layer a level of skepticism about Hoku's ability to complete the plant project.

"It's another vote of confidence," said Rob Stone, analyst at Cowen & Co. "It looks like Solarfun is going to stick around and this alleviates some concerns about how they would be able to keep the project together," Stone added. He noted that Solarfun's contract with Hoku is its second-largest --



, which owns an equity stake in Hoku, has the largest contract for the new plant.

"It's always been a question of could they keep gathering in enough funds to make scheduled pre-payments and raise equity and debt as needed," Stone said.

The question for investors now, of course, is the stock's valuation after its rapid rise, and its second rapid-rise in the past three months -- which logically means that a rapid fall is also possible.

Cowen's Stone says that $3 is a reasonable valuation for Hoku -- it was trading at $2.83 in the afternoon. Stone explained that it is not that the amendment with Solarfun is such a drastic change, or that it alone merits a 20% spike in Hoku shares, but the fact that every investor's worst fear, that Solarfun might walk away from the deal entirely, now seems unlikely.

Cowen has a price target of $3 on Hoku. The book value of the company is $1.84, and Cowen assumes that if the project is going to be completed, trading at 1.8 times book value is a reasonable target in light of the fact that even with the plant completed Hoku would still not be making money for some time.

And that's not the only risk. Even if an investor assumes the plant will be finished on schedule, there is risk connected to the ramp-up of the plant once completed, the actual versus projected level of volume, and cost management. "These are all open questions, and our rating on Hoku has been neutral for some time,' Stone said, adding, "We think $3 is fair value."

With Hoku again near $3 -- the same level it attained at the beginning of October -- is there room to play the stock beyond the 20% spike today? The biggest opportunity to trade may have been between recent lows and the $3 level.

Cowen's Stone provided a note of caution for investors who read about the 20% spike today and become overexcited about Hoku. "It's reasonable to assume that Hoku could be volatile again, which is why we have a neutral rating. Three dollars is not an outlandish valuation," Stone noted, adding, "People who want to trade around that are welcome to, but we remain neutral," Stone added.

The takeaway message from today's Hoku announcement may really be that with a vote of confidence from Solarfun, Hoku at least has the financing in place to start making polysilicon next quarter. If the project was not going to go ahead, it would be worth its liquidation value only.

Still, is the polysilicon plant a done deal on the news that Solarfun will keep paying? Cowen's Stone, one of three analysts who cover Hoku, wouldn't go that far on Tuesday. He pointed out that Hoku did not issue a statement alongside the Solarfun update, saying that with the encouraging news, it now had all the financing in place to finish the project.

-- Reported by Eric Rosenbaum in New York.


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