11 Solar Stocks With Upside: Analysts

NEW YORK (TheStreet) -- Trina Solar (TSL), LDK Solar (LDK), Canadian Solar (CSIQ) and JA Solar Holdings (JASO) are among 11 solar stocks that are seen generating handsome returns to investors, riding on the tidal wave of strong growth for solar energy.

Germany, traditionally the world's largest solar market and consumer of solar products, has been more measured with incentives for the solar sector. However, German government officials and industry groups are reaching an agreement over solar-power subsidy cuts for 2011. Germany, which consumed almost half of the world's solar panels in 2010, signals optimism for solar companies and market prospects. Hinging on the volume of new solar power capacity additions, the government may cut incentives by almost 12%, effective July 2011. However, if installations exceed 7.5 gigawatts, subsidy cuts may reach almost 15%.

Analysts at Saxo Capital Markets foresee solar industry revenue rising 22.5% in 2011, with profits growing at 28.7%. Analysts believe that with a 2011 forward P/E of 7.5, the solar industry is a safer bet than the wind sector, which has a forward P/E of 15. Further, Saxo Capital adds that the extended tax grant program (1603) in the U.S. will cushion solar demand in 2011 and 2012.

On average, analysts polled by Bloomberg expect these stocks to up to 62% in the upcoming 12 months. Analysts favor these stocks, citing strong solar sector outlook and individual company performances.

11. MEMC Electronic Materials ( WFR) is engaged in the manufacture and sale of wafers enabling high-performance semiconductor and solar applications. The company operates in three major segments: Semiconductor Materials, Solar Materials, and Solar Energy.

For 2010 fourth quarter, MEMC reported a net income of $11.4 million, or 5 cents per share, compared to a net loss of $7.1 million, or 3 cents per share, in the same quarter a year ago. Sales doubled to $850 million due to a major contribution of 36.2% to the total revenue from the purchase of solar developer SunEdison in November 2009. Earnings per share were 15 cents on $2.2 billion sales.

Heading into 2011, the company estimates GAAP sales to range between $2.8 billion and $3.1 billion, while earnings per share will come in the range of 25 to 55 cents. Analysts at Citigroup expect the company to report record operating cash flow of $750 million in 2011. Citigroup reckons earnings per share of $1.75 within the next two years, based on the company's compelling business model.

Of the 25 analysts covering the stock, 40% recommend a buy while 44% rate a hold. The average price target of analysts surveyed by Bloomberg is $14.1, 5.6% higher than the stock's current level.

10. SunPower ( SPWRA) is a vertically integrated solar products and services company engaged in designing, manufacturing and marketing high-performance solar electric power holdings. On a broader classification, it operates in two major segments - components and systems. The company is scheduled to release its fourth quarter and full year financial results on Feb. 17, 2011.

Glimcher Realty has announced that SunPower will design, install and maintain the 4.8 megawatts rooftop PV system on the roof of Jersey Gardens mall in Elizabeth, NJ, deemed the single largest rooftop solar system in North America. Meanwhile, BNB Napoleon Solar is in final contract negotiations with SunPower for the engineering, procurement and construction contract for building a photovoltaic solar array for Campbell Soup's ( CPB) largest plant in Ohio.

Installed Systems is SunPower's most valuable division that contributes almost 39% to revenue and confers a niche market position, comment analysts at Trefis. SunPower is the largest player in system installations, while competitors First Solar ( FSLR) and Suntech Power Holdings ( STP) generate only 5.6% and 4.3% of total revenue. SunPower has the highest efficiency among all players with conversion efficiency greater than 23% for its Gen 3 cell technology. The company produces solar panels with the highest watts per square foot that each panel produces (PTC/sq ft ratings) in the industry. SunPower's panels have 10% greater energy capture than the industry average, are easier to install and cheaper than silicon-based cells.

Of the 41 analysts covering the stock, 34% recommend a buy while 51% rate a hold. The average price target of analysts surveyed by Bloomberg is $16.7, 8.4% higher than the stock's current level.

9. Suntech Power Holdings ( STP) is a solar energy company engaged in the design, development, manufacture and marketing of photovoltaic (PV) products. Besides providing PV system integration services to its Chinese and U.S. customers, Suntech is forging into utility scale solar power systems.

Suntech will be supplying 115 megawatts of photovoltaic panels to Italian company Enerpoint, with installation scheduled for 2011 and 2012. The deal value is not known. Meanwhile, as per U.K.-based IMS Research, for the third quarter, Suntech topped in PV module shipments, beating U.S. rival First Solar. Shipments were 25% higher quarter-on-quarter basis. For full year, Suntech's CEO expects shipments of 1.5 gigwatts, surpassing First Solar's estimated 1.3 gigawatts.

Trefis analysts believe that PV modules indicate Suntech's most valuable product division, accounting for almost 95% of total revenue. The company is the largest supplier of PV modules and the cheapest in the industry, benefiting from cost advantages like cheap labor and raw materials in China. Currently, Suntech records conversion efficiency rates of 18% to 19% and 16.5% to 17.5% for PV cells manufactured from monocystalline and multicrystalline silicon wafers, respectively.

Suntech is seeking to develop a low-cost PV technology called thin-film technology to increase conversion efficiency. By end-2011, the company will supply high-efficiency solar cells from its newly set up 1,000 megawatt solar energy industry base, initially to Minhang's governmental and civil PV power generation and building integration projects. In 2012, Suntech forecasts an annual production capacity of 5,000 megawatts generating sales revenue of $15.2 billion.

Of the 43 analysts covering the stock, 28% recommend a buy while 51% rate a hold. The average price target of analysts surveyed by Bloomberg is $9.7, 11.7% higher than the stock's current level.

8. Yingli Green Energy Holding ( YGE) is a vertically integrated photovoltaic product manufacturer engaged in the design, manufacture and sale of PV modules and PV systems. Yingli sells its PV modules under its own brand name. The company is scheduled to release its fourth quarter and full year financial results on Feb. 18, 2011.

Recently, Yingli signed a deal with Borrego Solar Systems for supplying 20 megawatts of PV modules in 2011. Although the contract value is small, it, in a way, doubles the prospect of a multi-year relationship between the two companies and increase its penetration rates in the rapidly growing U.S. solar market.

During the third quarter results, Yingli raised its 2010 estimated PV module shipments to 1,020 to 1,040 megawatts from the earlier estimated range of 950 to 1,000 megawatts. Yingli expects revenue to come in the range of $1.78 to $1.81 billion. Analysts at Miller Tabak foresee the company reporting earnings per share of $1.45, compared to 55 cents in 2009. For the fourth quarter, Miller estimates 43 cents per share as against 32 cents in the year-ago quarter.

Of the 30 analysts covering the stock, 50% recommend a buy while 37% rate a hold. The average price target of analysts surveyed by Bloomberg is $13.5, 16.9% higher than the stock's current level.

7. Canadian Solar ( CSIQ) designs, develops, manufactures, and markets solar cells and module products. Besides, the company also designs and produces customized specialty solar modules and products. Canadian Solar sells its products under its own brand and to OEM customers under their brand names.

For 2010 third quarter, the company reported a 10% rise in 200 megawatts shipments, marking its best third quarter. Canadian Solar reported impressive sequential growth rates of 531% and 15% in its net income and revenue during the quarter. Meanwhile, looking ahead, the company expects gross margin to improve in the upcoming quarters as third party product purchases decline. For the fourth quarter, gross margin is expected at 17% to 18%, compared to 17.3% recorded in the third quarter.

Early January, Canadian Solar announced it will supply modules to Europe's largest capacity PV solar power plant, estimated to generate energy to power more than 16,500 homes and curb carbon emissions by more than 40,000 tons.

Of the 15 analysts covering the stock, 40% recommend a buy while the remaining rate a hold. There are no sell ratings on the stock. The average price target of analysts surveyed by Bloomberg is $16.4, 18.1% higher than the stock's current level.

6. LDK Solar ( LDK) is engaged in the production of solar wafers and manufactures solar modules. The company sells both multicrystalline and monocrystalline wafers to solar cells and modules manufacturers. As the second largest multi-crystalline solar wafer manufacturer, LDK Solar has 2 gigawatts of capacity and a 10% global market share.

The company has raised its fourth quarter sales forecast 21% higher from the top-end of its $750 million previous estimate. Revenue is now seen coming in the range of $870 to $910 million from the prior $710 to $750 million. Gross margins are forecast in the range of 25% to 27%, as against the earlier 24% to 26%.

For 2011, the company has raised its revenue estimates in the range of $3.5 to $3.7 billion, compared to prior forecast of $2.9 to $3.3 billion. Meanwhile, early January, LDK Solar agreed to acquire a 70% interest in Solar Power for $33 million. The company's constant efforts to complete the 1.5 gigawatt cell and module production facility in Hefei, a technology sharing agreement with National Renewable Energy Laboratory (NREL), strong relationship with Tinsinghua University and its interest to invest in research and development signal a bright future for LDK Solar. The company recently announced plans to raise $149 million through a secondary share offering on the NYSE for general corporate purposes.

Of the 22 analysts covering the stock, 41% recommend a buy while 41% rate a hold. The average price target of analysts surveyed by Bloomberg is $15.8, 27.2% higher than the stock's current level.

5.

Trina Solar ( TSL) is a China-based integrated solar power products manufacturer with a global distribution network across Europe, North America and Asia. The company produces standard monocrystalline photovoltaic (PV) modules and multicrystalline PV modules in power output.

For the third quarter, sales doubled to $508.3 million and profit surged 108% to $82.9 million, on booming demand from Germany. Trina plans to invest $800 million to develop a solar PV park in China during the next three years, boosting its manufacturing and research and development competence. For 2010, Trina's aggregate shipments were 930-940 megawatts, a stellar 135.6% increase from 2009, almost close to its output capacity for 2010.

Trina's CEO expects oversupply in the near term following capacity expansions in 2010. He foresees a 30% year-over-year incremental demand growth for polysilicon products in 2011. For 2011, he forecasts U.S. shipments to double, contributing significantly to gross and net profits. He believes Trina has competitive products, with attractive conversion efficiencies, a healthy cost structure and growing sales opportunities in China.

Of the 32 analysts covering the stock, 84% recommend a buy while 6% rate a hold. The average price target of analysts surveyed by Bloomberg is $33.8, 28.5% higher than the stock's current level.

4. China Sunergy ( CSUN) is engaged in the design, development, manufacture and sale of solar cells through its wholly owned subsidiary Sunergy Nanjing. The company produces both mono- and multi-crystalline solar cells.

In response to growing industrial demand, the company estimates to reach 400 megawatts of solar cell capacity by year-end 2010 and 680 megawatts of module capacity by the end of 2011 first quarter. Zacks analysts' foresee the company reaching a profitability of $1.18 per share in 2010, compared to 44 cents per share in 2009.

The company recently secured a 1.1 megawatt solar module supply contract in Switzerland for 2011. Under the agreement, China Sunergy will supply Sunergic, a solar system integrator in Switzerland, solar modules of 1.1 megawatts for Services Industriel de Geneve (SIG), a Swiss utility. Through this contract, the company aspires to expand its global presence and customer base.

Of the 7 analysts covering the stock, 43% recommend a buy while the remaining rate a hold. There are no sell ratings on the stock. The average price target of analysts surveyed by Bloomberg is $6.1, 35.9% higher than the stock's current level.

3. JA Solar Holdings ( JASO) is a manufacturer of high-performance solar cells, both mono- and multi-crystalline. Operating through its wholly owned subsidiaries, JA Solar designs and markets these high-performance solar cells.

Shipments during 2010 fourth quarter are expected to be approximately 450MW. JA Solar has meanwhile raised its outlook for full year 2010, citing strong demand for its products. It expects shipments to exceed 1.45 gigawatts in 2010, compared to its prior guidance of 1.35 gigawatts. JA Solar's chief executive expects solar cell production capacity to expand by almost 30% in 2011.

The company recently announced it has entered into a three-year 400 megawatt solar modules deal with a European customer, with deliveries phased: 100 megawatts of solar modules in 2011, 125 megawatts in 2012, and 175 megawatts in 2013.

Of the 23 analysts covering the stock, 61% recommend a buy while 22% rate a hold. The average price target of analysts surveyed by Bloomberg is $10.6, 45.2% higher than the stock's current level.

2. Solarfun Power Holdings ( SOLF) manufactures silicon ingots, photovoltaic (PV) cells and PV modules. The products are sold directly to system integrators and through third party distributors. Besides, the company offers PV cell processing and PV module processing services.

During December 2010, the company announced it would be changing its name to Hanwha SolarOne after entering into a partnership with South Korea-based Hanwha Chemical, which has a 49.99% stake in Solarfun,.

For 2010 fourth quarter, Solarfun sees total module shipments between 205 MW and 215 MW, with 25% to 30% for PV module processing services. The company has raised its shipment guidance for 2010 from 750 MW to approximately 785 MW. Meanwhile, the company intends to ramp up its additional capacity expansions for cell, wire, module and ingot production.

Solarfun has announced a long-term supplementary wafer and polysilicon product supply contract with GCL-Poly Energy Holdings, effective January 2011. Under the agreement, GCL-Poly will provide SOLF 2,500 megawatts wafer and polysilicon products over the next five years. Solarfun's agreement with MEMC Electronic Materials will result in supply of 54 MW PV modules to its affiliate SunEdison in 2011, for use in its solar power plant projects. The agreement has an additional option for 30 megawatts.

Of the 16 analysts covering the stock, 44% recommend a buy while the remaining rate a hold. There are no sell ratings on the stock. The average price target of analysts surveyed by Bloomberg is $13.2, 55.5% higher than the stock's current level.

1. ReneSola ( SOL) is a China-based manufacturer of solar wafers and solar power products. The company has a global network of suppliers and customers including manufacturers of solar cells and modules. ReneSola is scheduled to release its fourth quarter and full year 2010 financial results on March 1, 2011.

For 2010 fourth quarter, the company expects total solar wafer and module shipments in the range of 310 MW to 330 MW, revenues between $340 and $360 million and gross profit margin of 30% to 32%. Looking ahead, the company estimates solar wafer and module shipments of 1.13-1.15 gigawatts and 1.6-1.7 gigawatts for 2010 and 2011, respectively. ReneSola expects to incur $150 million capital expenditure for 2011, with production capacity improving by 17% to 60% for polysilicon, wafer and module product segments.

The company has developed a new multicrystalline wafer, the Virtus Wafer, to improve solar cell efficiency and pilot production of the same will begin in the first half of 2011. The Virtus wafer has the capacity to achieve an average cell conversion efficiency rate of 17.5%, which is 1% higher than the industry-standard cell conversion efficiency rate for cells using multicrystalline wafers.

Of the 15 analysts covering the stock, 80% recommend a buy while 13% rate a hold. The average price target of analysts surveyed by Bloomberg is $17.6, 62.1% higher than the stock's current level.

>To see these stocks in action, visit the 11 Solar Stocks With Upside portfolio on Stockpickr.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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