Solar Stks Rally; Citi Analyst Calls Bottom [View all]

[FBaggins]

Solar stocks are headed higher Tuesday morning after Citigroup analyst Timothy Arcuri this morning asserted that there are signs that the beleaguered sector is nearing a bottom. He raised his rating on Sunpower to Buy from Hold; for Yingli Green Energy he goes to Buy from Sell. Arcuri maintains his Buy ratings on Trina, MEMC Electronic Materials and Advanced Energy Industries.

“Our field work indicates product sell-through – particularly in Europe – has increased significantly in the past 1-2 weeks and utilization rates at Tier 1/2 cell/module producers have begun to spike higher,” Arcuri writes in a research note. “This indicates a clearing of inventory and suggests Q2 should ultimately represent a cyclical bottom in margins at cell/module producers. This is being driven in part by pull-ins ahead of mid-year feed-in tariff cuts in 6 European countries; typically, this might result in a falloff in demand for Q3 but this time we see other markets with demand elasticity that can more than offset any Q3 European softness. These include China, India, US, Japan (new FiT in July is among the highest in the world) and many other smaller countries where free market economics, rather than FiTs, are driving demand elasticity.”

Arcuri adds that while “headline” cell and module supply will continue to far outstrip demand, he contends there is only about 15 GW a year of integrated capacity to turn polysilicon into solar modules. He contends that with demand likely to grow from 4 GW in Q1 to as much as 8 GW in Q3, demand should start to outstrip integrated supply. “This should not only provide pricing stability, but also allow major integrated producers to realize ~20%+ cash margins – enough of a catalyst for stocks in light of such negative sentiment,” he writes.

http://www.forbes.com/sites/ericsavitz/2012/05/01/solar-stks-rally-citi-analyst-calls-bottom-ups-spwr-yge/?partner=yahootix