Auriga released its 2011 report on the solar industry last night and I wanted to summarize it a bit here for my readers. Auriga continues to remain generally bullish on the sector and doesn’t buy into the weakening demand + supply glut scenario that several other analysts are predicting for 2011/2012. They predict 23% growth for 2011 and highlight the elasticity of the solar market where as prices decrease demand picks up. They cite a few reasons for being bullish…
* As subsidies get cut, it can create a mini gold rush of solar installations before time runs out on generous subsidies.
* Returns for solar investors will remain attractive despite subsidy cuts. They highlight that returns in Germany can still yield around 8%, but demand will likely shift to more attractive markets such as the Czech Republic and Italy
While Auriga is bullish, they acknowledge it’s a difficult time for solar stock investors with multiples decreasing and the sector in the midst of a cyclical and seasonal slow down. Their primary fear that could inhibit demand more than expected would be the availability of debt financing.
They conclude that based on very attractive valuations at these levels they are massively over weighted their Buy rated solar stocks and believe now is the time to get in before demand reappears in Q1.
What solar stocks are they massively over weighted you ask? Here are the Buy rated solar stocks mentioned in the report which we can likely assume they have accumulated and will accumulate at current levels.
Canadian Solar (CSIQ) was upgraded from Hold to Buy. They see CSIQ cost model improving. Your FREE Daily CSIQ Analysis Here
JA Solar (JASO) was upgraded from Hold to Buy based on valuation combined with a leading cost structure and better wafer sourcing. Your FREE Daily JASO Analysis Here
They see the largest upside potential in the following three solar stocks which they have Buy ratings on:
Renesola (SOL) with a $27 price target which is nearly triple the current price.
Your FREE Daily SOL Analysis Here
Jinko Solar (JKS) with a $45 price target which is nearly double the current price.
Your FREE Daily JKS Analysis Here
Solarfun (SOLF) with a $16 price target which is also nearly double the current price.
Your FREE Daily SOLF Analysis Here
They also remain bullish on Trina Solar (TSL) with a $41 price target and First Solar (FSLR) with a $167 price target. They believe both these companies demonstrate cost leadership, quality management and a resilient business model.
It should be noted that Auriga is downgrading shares of SunPower (SPWRA) from Hold to Sell given the lack of compelling revenue growth in 2012 coupled with no meaningful improvement to their valuation metric of tangible book value.