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) -- A trio of bullish Street calls on solar companies Wednesday highlights conviction that the Street consensus is too low on the sector given demand levels, and some solar stocks are set to pop on earnings outperformance.

Auriga Securities analyst Mark Bachman made bullish calls on two upstart Chinese module makers on Wednesday,

Jinko Solar

( SOLF) and

Solarfun Power

( SOLF).

MEMC Electronic Materials


was up moderately in Wednesday trading after an upgrade from Kaufman Brothers solar analyst Jeff Bencik to buy from a previous hold.

The biggest beneficiary of the bullish stance on solar were Jinko and Solarfun, up 3.5% and 5.5% respectively, on Wednesday morning.

Shares of Jinko Solar have been moving higher in July, up from under a $10 share price, and were nearing the $15 mark on Wednesday morning after a 5.5% spike -- Jinko shares hit a 52-week high in early trading on Wednesday.

Jinko Solar is the latest Chinese entrant to the race to capture more solar module market share with low-cost, scaled production. The Auriga analyst believes that Jinko's business shift away from straight solar wafer sales (to instead creating a captive market for its wafers through the ramping of its solar module business) will drive upside potential in Jinko shares. Wafer margins are high, but the Auriga analyst contends that Jinko will achieve higher earnings, revenue and gross margins from capturing more of its wafer capacity through module sales.

Additionally, Jinko's plan to create an evenly blended production capacity of solar wafers, cells and modules is ahead of scheduled, according to Auriga.

Jinko achieved scale of 400 megawatts in both module and ingot/wafer capacity, and 300 megawatts in cell capacity by the end of the second quarter, Auriga research shows, which would be a quarter ahead of the analyst's previous model.

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By the end of the year, all three Jinko Solar production segments should be balanced at 500 MW.

As a result, Auriga has upped its price target on Jinko shares to $25 from $23, or 7x the Auriga 2011 EPS estimate.

Auriga's Bachman says that the current Street consensus on Jinko gives him plenty of confidence taking a more bullish position. "We have high conviction in our call and suggest that the company has significant upside potential from current prices; we see the consensus estimates moving meaningfully higher after the Q2 earnings call where we expect the company to handily exceed Street expectations for Q2 while raising expectations for full-year 2010."

MEMC shares were up 4% in the pre-market on Wednesday morning, but it was thin trading and by the opening bell the gains were a modest less than 1%.

The Kaufman Brothers analyst raised his MEMC price target by a dollar, to $15. The U.S. semiconductor and solar company has not benefited from an increasing price trend, losing one-third of its market value since the end of April and its last quarterly results. MEMC shares have declined from close to $16 in April to below $11 in trading on Wednesday morning.

The 35% decline in MEMC shares is a compelling valuation story, in the opinion of the Kaufman analyst The analyst argues that while the last earnings helped to drive MEMC shares lower, the solar company is set up for an earning rally -- MEMC reports on July 29 -- on any outperformance of diminished Street expectations.

Consensus estimates for 2010 have declined from 75 cents to 66 cents over the past three months, but the Kaufman analysts thinks the Street reaction was overblown, driven by the euro decline fears, expectation of weak solar financing and the reductions in German feed-in tariffs limiting demand.

The Kaufman analyst noted that consensus is now below MEMC guidance of 70 to 80 cents earnings in 2010.

Kaufman is valuing MEMC shares at 12x its 2011E EPS estimate of $1.30, almost 50% upside from current levels. MEMC earnings expectations have been ratcheted up to 70 cents for 2010, and $1.30 for 2011, 6% above 2010 consensus, and 12% above next year's Street view of MEMC earnings potential.

As pricing strengthens in the semiconductor market, MEMC moves solar wafer-making in-house, and the company extends a long-term supply agreement with

JA Solar


to supply modules for its SunEdison large-scale solar project business -- all of which are critical to the bullish Kaufman view on MEMC -- the share potential in the Kaufman upgrade should be realized. It would in fact, still be below historical valuation for the U.S. semiconductor and solar company.

Auriga also raised its price target on

Solarfun Power

( SOLF) from $9 to $13.

Solarfun recently announced a major capacity expansion for 2010 and 2011 driven by the current high demand levels in solar. Auriga believes that Solarfun will ship at least 210 MW of modules in both final quarters of 2010, resulting in an 18% gross margin in the second half of the year, which might rise as high as 20%.

As in its Jinko Solar call, Auriga thinks the Street is too low on earnings estimates for Solarfun given the shipment and margin profile.

"We have increased confidence that management will expand capacity meaningfully in 2011 and are modeling 979 megawatts of shipments versus year-end capacity of 1.25 gigawatts.

The Auriga analyst thinks that even though the euro depreciation in the second quarter will be an earnings headwind, Solarfun will beat the 24 cents earnings/$212 million revenue consensus estimate.

-- Written by Eric Rosenbaum from New York.


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