Several “analysts” advise us to avoid the recent leaders in the
Solar Photovoltaic [PV] industry, as they will crash and burn
because they are “growing too fast”. The cost of rapid growth “will
end their ability to generate profits”. They also point out that
manufacturers may have to “prepay” for some of their supplies, as
well as fund large costs for additional production lines to meet
increasing demand. To one who looks for “growth stocks”, throw me in
that briar patch!
Other postings discuss how new PV technologies under development
will undercut the prices of Silicon PV. Claiming that thin film,
e.g., CdTe, and more recently CIGS (Copper Indium Gallium
di-Selenide) can be manufactured “far cheaper” than the Silicon/Polysilicon
panels that dominate, by MW production, the current sales and
installation statistics.
These articles are full of useful, helpful information. I put quotes
around the term “analyst”, as there are a variety of definitions for
the people doing this work. Some work for private consulting firms
where their income is based on providing research to leading
companies in the industry, or provide research to investment
companies or marketing companies. I think of “analysts” as those who
work for brokerage firms who make inputs to the consensus forecasts
found on First Call or your favorite broker or website.
Recently, a student “analyst”, Michael Lu, posted an excellent
article about LDK Solar (LDK), in which he researched, in Chinese,
the tax records that show how profitable LDK is, and will be, as
their big investment in expanding their Silicon factory creates more
product output soon. He also shows how income taxes in China
encourage new companies and technologies. First, with startup cost
write-offs; then when they begin manufacturing and selling products,
they are exempt from national income taxes for 2 years, etc – see
his article. So LDK and other startups do not pay the full 25%
Chinese income tax for a few years.
Solar Photovoltaic [PV] industry
Another “analyst” recently posted “Who Will Crack the CIGS Nut in
Thin Film?”. Neal Dikeman provides a very conservative list of the
monetary costs to startup a CIGS PV manufacturing company, along
with an estimate of 3 to 5 years to turn that investment into
product, with positive sales and income. The costs and time for
Silicon PV manufacturing are similar, if not more expensive. He says
that most of the CIGS companies are at a very early stage of startup
(while Silicon companies grow and mature).
Below is a table of forecast sales and earnings for several solar
stocks which I obtained from Schwab and/or Daily Graphs. I am told
that Schwab got this information from Reuters Research and Wall
Street Horizon. As a retired person, with modest funds, I have made
the assumption that the “analysts” whose consensus earnings forecast
are listed below, include the cost of money, and all line items
provided in each quarterly and annual report as expanded on during
the quarterly conference calls. These forecasts should take into
account all the “scary” information about the hidden costs that are
an integral part of “fast growth” companies.
My general conclusions about Solar PV companies then includes:
* The consensus earnings and sales numbers provided by Schwab & DG
are researched numeric estimates, compared with the scary opinions
of some “analysts” who have an unknown agenda. Particularly when
they provide no facts, nor numbers that can be verified.
* New technology may lead to reduced manufacturing costs, and lower
selling prices, but the cost of funding a new startup and the time
required to set up suppliers, buy equipment, hire and train staff,
gives the current Silicon leaders in MW production and sales
significant time to react to the potential competition. Checkout
Advent Solar who laid off manufacturing staff in March while
continuing their R&D activities.
* There are advantages in both cost of labor and income tax rates
for those manufacturing in China or Asia, as most of the current
volume manufacturers are doing.
* The number trends provided for LDK should also apply to most other
current leaders who do their manufacturing in China.
Now, to the focus of my posting – comparison of several of the
leading Solar PV companies sales and earnings forecasts. These
values were obtained from Schwab & DG as of July 11 and to the best
of my knowledge are the consensus of several “analysts” who are paid
to just present the facts, after talking to the technical and
financial folks at each company, and probably visiting each company.
Most of these companies report that they made, sold and delivered
25MW to 120MW of PV last quarter and they expect to have 200MW to
1GW capacity by the end of 2008, with double that by end of 2009.
Most of them also claim to have sold most of their 2008 production
and some of their 2009 production. It is unclear whether some or all
of these companies require a deposit(prepay) to offset any
deposit(prepay) they incur from their suppliers; but the forecast
numbers should include the appropriate cost and cash flow reality. I
included Energy Conversion Devices (ENER) in these tables as it has
gained in popularity on SA, even though it had negative earnings
last year and expects to earn $0.01 in calendar 2008. I normalized
their earnings and sales figures (their fiscal year ends June 30),
so everyone in this chart is compared on a calendar year basis.
Here are actual and “analyst” forecasts for sales and EPS for these
companies.
Detailed quarter by quarter forecasts are available for sales and
earnings, but space limits me to annual numbers only. I expect the
2009 estimates to change every quarter, as each earning cycle is
reported, and conference calls provide new information. Therefore I
will not comment on the 2009 numbers. The year over year forecast
sales and EPS growth numbers are ALL way above average for S&P
companies.
In good economic times these growth numbers would be worthy of P/E’s
far above the current stock prices. I won’t comment on this data,
but I think everyone can find a case for your favorite company. Even
the larger, slower growing companies in this group have sales and
earnings growth that leads the general market, and they are
generally supported by many “analysts”, so their P/E is at a
premium, as shown in the next table.
Note that the first 8 companies in this list make Silicon PV
products, and lead the PV market in MW volume sold and shipped. Note
that ENER is two years behind the leading Silicon companies in MW
volume and in EPS. Their ’09 forecast of $1.47 is equal to the
actual ’07 EPS for TSL, which is forecast here at $4.47 for ’09.
Here is a table showing capitalization vs price, EPS, P/E, forward
P/E, P/S and forward PEG, where P/S is simply capitalization divided
by ’08 sales (Price/Sales), and PEG is forward P/E divided by % EPS
growth this year, as listed in this table. This table is sorted on
the forward PEG in the last column.
These numbers are based on consensus sales and earnings numbers
forecast by many analysts. Based on Trailing (current as of 7/11)
P/E, 8 of these companies (all Silicon PV producers) are at 32 or
less, and I would deem them attractive based on forecast sales and
earnings growth from the first table. These eight companies also
have a 2008 forward P/E that is very attractive; less than 22. These
same eight companies have a Price to Sales ratio that is less than
4; with five of these less than 2. Finally, six companies have a
forward PEG less than 0.2, which is almost unheard of; and the first
ten companies are less than 1.0, where most “analysts” recommend
growth companies with a forward PEG less than 2.
Another recent posting suggested only three of these companies, with
addenda later. In "Temporary Market Bottom? 3 Solar Stocks That Look
Like Bargains", David White used earnings forecasts from TD
Waterhouse, which are within 5-10% of the numbers listed here. His
forward PE and PEG numbers, however, used his own ‘Target Price
Estimate’ instead of the current July 11 price used here to compute
forward P/E, and forward PEG.
Sunpower (SPWR) ($0.37 forecast) and Evergreen Solar (ESLR) ($ -0.10
forecast) [forecasts are from Bloomberg.com: Earnings] are releasing
actual earnings for the June 3 quarter on July 17, and the remaining
companies will likely release earnings the 2nd and 3rd week in
August, when we will witness the “crash and burn” or continued
growth shown here. I assume we will get lots of news from InterSolar
2008 at the Moscone Center in San Francisco this week, July 15-17,
which is combined with SEMICON, where Applied materials (AMAT) will
present their new SunFab equipment.
Solar Photovoltaic [PV] industry
