Auriga Initiates Coverage Of Several Solar Stocks – TSL, SOLF, YGE, STP, CSIQ, FSLR, SPWRA

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06:17:43 pm on April 13, 2010

Solar analyst Mark Bachman of Auriga USA (formerly of Pacific Crest) initiated coverage of several solar stocks after the bell today.  Hat tip to Street Insider for the following analyst comments:

Trina Solar (TSL) initiated at Buy with $34 price target (about 30% above current levels).  More TSL analysis here
“We initiate coverage of Trina Solar with a Buy rating as the most under appreciated Chinese solar company we follow. While the stock is up better than the rest of the group since the 4Q08 lows, the stock still trades at just 11.4x our 2011 EPS of $2.29. Market concerns for the stock center on the modeled sequential gross margin decline after the big 4Q09 beat and the flat 1H/2H10 sales guidance given during the call. We believe there is additional upside in 2H10 should demand materialize stronger than current expectations, coupled with TSL responding with additional capacity expansion plans.”

Solarfun Power (SOLF) initiated with Buy and $12 price target (about 40% above current levels). More SOLF analysis here
“We believe SOLF does not receive appropriate credit for its module relationship with Q-Cells and Q-Cells’ subsequent relationship with SunEdison. While this is a tolling arrangement, it does aid the development of SOLF’s sales channel outside of Germany, the chief complaint of investors given what we view as the over-hyped and expected drop-off in 2H10 German sales; shipments into Germany have historically accounted for more than 50% SOLF’s sales. We see little risk to management’s guidance of 600MW of shipments, which leads us to our above-consensus revenue forecast in 2010. Our price target is 12x our 2011 EPS of $1.03.”

Yingli Green Energy (YGE) initiated with Buy and $18 price target (about 45% above current levels).  More YGE analysis here
“YGE is arguably the largest Chinese supplier of modules and rivals Trina as the lowest cost producer. The 4Q09 conference call was confusing, which is often the case for YGE, as investors sought explanations for several 1x items. The resulting sell-off created an attractive entry point in the stock. YGE’s low-cost manufacturing structure enables it to gain share while delivering an appealing margin profile. In our view, the Street is too bearish with regard to cost reductions, thus we expect consensus estimates to trend towards our estimates.”

Suntech Power (STP) initiated with Hold and $15 price target.  More STP analysis here
“Our model is largely in-line with the Street consensus, and we are lacking a catalyst to either be long or short the stock. Near-term earnings are not an issue, sizable capacity is already in place and still expanding, and the company appears to be FCF neutral on a moderate capex spend. The distraction of the Global Solar Fund (GSF) remains, but is likely priced in at current levels. Thus we are lacking a catalyst to make a definitive stock call. We find the stock fairly valued using a 15X multiple on our 2011 EPS of $1.00.”

First Solar (FSLR) initiated with Hold and $143 price target (10% above current levels).  More FSLR analysis here
“We believe the consensus is overestimating 1H revenue while underestimating 2H revenue. The revenue disconnect extends to the EPS estimates as well. While we currently see strong demand for FSLR’s product, we believe actual results will fall short of the Street estimates and will likely cause the stock to move lower from current levels.”

JA Solar (JASO) initiated with a Hold and $6.50 price target (nearly 10% above current levels).  More JASO analysis here
“While we recognize JASO as one of the volume, price, and quality leaders in the photovoltaic (PV) industry, capacity expansion plans should only add minimal quarterly shipment growth over 4Q09’s level. With capacity modeled at 1250MW by 4Q11, we also struggle with the lack of meaningful EPS growth in 2011 given a moderate level of capital investment. In order for JASO to become more attractive, management would have to enact a much more aggressive capex plan, in our view.”

Canadian Solar (CSIQ) initiated with Hold and $25 price target.  More CSIQ analysis here
“While we are impressed that management has built an exceptional sales channel, CSIQ’s unbalanced manufacturing profile subjects it to price variations at its suppliers, which results in historical operational volatility. Combine this with a historical desire to compete on price, and we are not convinced CSIQ can consistently report better than a 15% gross margin and 7% operating margin versus the consensus margin structure of 16% and 9%. Although we are projecting year-over-year revenue growth of 79%, the EPS mismatch in 2010 cannot be ignored; the 2010 consensus EPS estimates need to be lowered before we turn more positive.”

SunPower (SPWRA) initiated with Sell and $15 price target (more than 15% below current levels).  More SPWRA analysis here

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