(Solarfun Power solar stock winners story updated with analyst commentary)

NEW YORK ( TheStreet) -- Solarfun Power ( SOLF) is leading gains in the solar sector on Monday after commentary from the Chinese solar company about the sales environment headed into 2011. Solarfun shares were up 6% in the afternoon and had already surpassed their average daily trading volume of 1.6 million shares.

Concerns have been expressed by solar-stocks researchers that the sold-out conditions in 2010 may not be repeatable in 2011, with feed-in tariff cuts in Europe leading to an oversupply situation in solar.

However, Solarfun said on Monday morning that "customer demand in the second half of 2010 turned out to be much stronger than what we had anticipated. We are largely sold out of existing capacity for the remainder of 2010. Our continued ramp-up in capacity is driven by increased visibility of demand from our key customers in the first half of 2011 and we want to be prepared to meet this additional demand."

Solarfun shares were recently up more than 4%, leading early gains among solar stocks. The capacity guidance from Solarfun was presented within an announcement from the Chinese solar company about plans to increase its solar cell capacity by 50 megawatts, and convert 160 MW of its existing cell lines to high-efficiency selective emitter technology, both moves slated for the first quarter of 2011.

The biggest capacity number from Solarfun, though, was presented in its plans to complete new manufacturing complexes in the first half of 2011. Solarfun said that these new manufacturing lines will have capacity of 500 MW of solar cells and 1.2 gigawatts of solar mocules. However, Solarfun did not provide a timeline for when the new manufacturing lines will reach the full ramp.

Running through all of the Solarfun bullishness on solar demand is the controversy about coming oversupply in the sector. While Solarfun President Peter Xie said visibility of customer demand for the first half of 2011 is driving the capacity increase, it is anything but a sure thing based on recent commentary from solar analysts. Several solar analysts have recently commented that visibility for 2011 is virtually non-existent.

Writing from last week's Intersolar conference, Wedbush Securities analyst Christine Hersey told investors, "Based on our conversations with upstream and downstream players, we believe visibility for 2011 is poor at the moment."

It looks like the battle lines are being drawn for solar, and they aren't new battle lines, either. Fears that the German feed-in tariff cuts would lead to a major drop-off in solar demand in the second half of 2010 have not been erased, but more or less pushed back to the first half of 2011.

The commentary from Solarfun and the Wedbush analyst show that the debate over potential solar oversupply in 2011 will likely be a bone of contention in upcoming solar earnings reports, and reports of visibility from solar management viewed skeptically by at least some Street analysts.

Bullishness on Solarfun Power wasn't just coming from the company itself on Monday, though. Two analysts expressed a positive view of Solarfun on Monday, also: Edwin Mok of Needham & Co., and Sam Dubinsky of Wells Fargo Securities.

Needham's Mok wrote in a research note on Monday that Solarfun remains one of his top picks, for two reasons. First, Mok likes Solarfun's potential to add business through the outsourcing trend among higher cost solar module makers, like the European players. Secondly, the Needham analyst sees Solarfun as a takeover target in the solar sector. Notably, Mok's positive view of Solarfun doesn't rule out a skeptical take on solar demand in 2011.

In the same research note, the Needhamn analyst wrote that the high demand expectations for the rest of 2010 are already priced into solar stocks, and he is still cautious on demand levels for 2011. In particular, Mok is expressing concern about the political support for solar feed-in tariffs in the Czech Republic, which is expected to become a more important European market for solar as Germany declines.

Sam Dubinsky of Wells Fargo wrote on Monday that Solarfun upside is predicated on the fact that it is only trading at 7 to 8 times earnings, and he also noted for investors that the second half 2010 demand trend is already reflected in solar stock prices. "With Solarfun running fully utilized, pricing benefitting from a tight market and the FX rebound, and the company looking at a meaningful expansion in 2011, our estimates now look conservative," the analyst wrote.

The euro, which dragged down solar stocks and seemed on its way to $1.20 in June, reached a two-month high on Monday, nearing the $1.30 mark. The euro has showed much-needed signs of stability for solar stocks, though second quarter results will still reflect the big euro slide.

-- Written by Eric Rosenbaum from New York.

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