NEW YORK ( TheStreet) -- It's been a bullish week of trading in solar, as a confluence of news has withstood the tide of negative pricing data points.

Two earnings pre-announcements out of China started the bullish trading -- Daqo New Energy ( DQN) on Friday, followed by the LDK Solar ( LDK) pre-report on Monday that led to a broad sector rally.

Add to the bullish pre-reports the price of crude oil rising above $91, and even more bullish indications that crude is headed for at least $100, and the general equity market rally, and add to that the steady stream of 2011 solar outlook reports from the Street, and some new money is finally being funneled back into solar.

One can even make the case that SunPower ( SPWRA) winning 711 megawatts in solar projects from Southern California Edison is another sign of the coming growth in the U.S. photovoltaic market.

On the one hand, the Southern California deal was more or less a catch-up deal for its renewable energy portfolio, after the utility ditched the 800MW Calico project in recent weeks, and ended up selling the project to a solar project development company, K Road Power.

Yet in the broader perspective, both the K Road deal to transition the Calico project to photovoltaic power, and the SunPower deal with Southern California Edison -- which also awarded another 120MW to FotoWatio for a total of 831 MW -- show that U.S. utility scale solar growth is trending to the photovoltaic technology and away from solar thermal.

On Tuesday, struggling U.S. solar company Evergreen Solar ( ESLR) announced that it was shutting down its U.S. solar plant, in a final capitulation to the domination of low-cost solar manufacturing in Asia, where Evergreen's own wafer-making efforts are centered.

There were several ways to read the Evergreen plant closure as an indication of conditions in the solar industry. For one, pricing is coming down more quickly than anticipated. Evergreen Solar said in closing the plant that prices for its modules had fallen so fast in December it could no longer manufacture with an economically feasible model. Yet Evergreen was always among the highest-priced vendors in the market, and if anything, the plant closure may not indicate a steep price drop across solar, as much as it indicates the long-anticipated shakeout between top tier solar companies and second tier companies that won't win the cost model race.

"Evergreen Solar is not an industry driver here. We're starting to see people fall by the wayside who can't compete in this business. I don't think there will be top tier consolidation, but there will be a shakeout," said Auriga Securities analyst Mark Bachman."I wouldn't read too much into Evergreen about the solar industry though, any more than the plant closure is an indication that they can't compete," the analyst contends.

If the Evergreen announcement about the plant closure was further proof that the low-cost Chinese module makers like Trina Solar ( TSL) and Yingli Green Energy ( YGE) will win during a period of uncertain supply/demand and pricing weakness -- Wells Fargo analyst Sam Dubinsky made this case in a research note on Tuesday -- it was reflected in Trina and Yingli trading on Wednesday, with Trina's gain of 4% second-best among Chinese solar stocks -- but the low-cost leaders weren't alone among the most bullish winners among Chinese solar stocks.

Jinko Solar ( JKS) and solar wafer players including ReneSola ( SOL) and LDK that were among the notable gainers in solar on Wednesday, too.

Jinko Solar shares were up more than 6%, while ReneSola shares and LDK shares were up by 3.5%.

For ReneSola and LDK, there was a read-through from Norway's Renewable Energy Corp., a major player in the solar wafer market. REC's CEO said at a European conference on Wednesday that price declines in 2011 may not be as big as previously anticipated.

REC CEO Ole Enger was quoted by Reuters as saying at the European conference, "As far as the market is concerned, we have seen a very strong Q4 and demand has continued in Q1."

While the REC commentary was not specific to its wafer business, analysts suggest that the REC chief was primarily referring to polysilicon and wafers. In addition to their solar wafer operations, both ReneSolar and LDK have growing in-house polysilicon production. LDK is planning to spin off its polysilicon business in an IPO this year, though there is risk that even with polysilicon pricing stronger than anticipated now, the window of opportunity for a strong polysilicon IPO may not last long.

LDK moved up again after having risen 20% on Monday with its earnings pre-announcement and upward revision on 2011 guidance.

There are continued fears of a pricing decline across the solar value chain, from poly to wafers, cells and modules, and there have been recent pricing checks indicating that pricing is indeed falling. Yet in wafers, the price decline has arguably been less than previously anticipated, with analysts saying wafer pricing per watt has declined from 90 cents to a range between 80 cents and 85 cents, nowhere near the worst-case scenario. The more optimistic commentary from REC on pricing has likely added to more confidence on a solar wafer trade.

The rise in Jinko Solar was the more difficult one to read, at least as far as a specific trigger, especially as it was the biggest gainer among Chinese solar stocks on Tuesday. If the tier-1 versus tier-2 shakeout is to occur during 2011, there's an argument to be made that Jinko falls on the tier 2 side of the divide. This was the case that Goldman Sachs made in its downgrade of Jinko Solar to a sell recently, yet it looks like Goldman's argument about Jinko is currently on the losing side of the solar trade.

Yet Jinko is really a hybrid tier-1/tier-2 player in solar. It's cost structure and vertically integrated model place it at the lower-end of the tier-1 crowd, while its lack of bankability and brand make it a tier-2 solar stocks as compared to a Trina or Yingli.

Notably in regards to brand, Jinko put out a press release about a 1.3MW deal being signed in the U.S. While the U.S. is expected to be one of the biggest growth markets for solar in 2011, and it's important for the Chinese solar companies to establish a footprint in the market, for some companies with better brand recognition, a 1.3MW deal might not merit a press release.

In the bullish trading analysis, it may simply be a valuation call on Jinko Solar given its earnings outlook for 2011. Mark Bachman, analyst at Auriga Securities, who recently reiterated his buy on Jinko, says that it mostly about valuation right now. Jinko debuted in its 2010 initial public offering at $11, rose to above $40, and then fell as low as $19. Coming into this week's trading, Jinko Solar was trading at 4.2 times Auriga's 2012 earnings estimate.

"The valuation on Jinko is just too good to pass up," Auriga's Bachman says, adding, "I think the key is that even a modest outlook suggests the stock can rise to 8 times earnings."

The Auriga analyst wrote in his outlook piece on Jinko, "Given Jinko's limited track record, coupled with the investor perception of being a second-tier module supplier, we believe shares of Jinko are being unfairly punished versus a bearish industry attitude. Recent checks suggest near-term results should be well above constrained consensus estimates, leading to further increases to consensus EPS estimates through the remainder of 2011."

"Jinko is first tier in terms of size, but it doesn't have the bankability, brand, sales force or customer base of the true tier-1 players. Yet even if most people think it's tier-2 among Chinese solar companies, if it continues to grow and continues to put up beat and raise quarters, it will slowly move into the top tier group. It's not a Trina or Yingli, but the risk/reward profile is attractive and it's moving in the right direction, so betting on its valuation and ability to establish a track record is worth a few dollars," Bachman argues.

-- Written by Eric Rosenbaum from New York.


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