Sun may set on solar stocks -- permanently

Renewable-energy companies face growing questions of viability.

By InvestorPlace Dec 14, 2011 1:49PM
 (© Russell Illig/PhotoDisc/Getty Images)By Jeff Reeves

First Solar (FSLR) is taking a beating Wednesday, off almost 20% thanks to a lowered outlook for 2012, delays in its projects and expensive reorganization plans. The stock is down an ugly 74% so far in 2011 and almost 90% from its 2008 peak.


First Solar isn't alone, either. Many solar companies are getting hit hard this year -- and are running the risk of going dark permanently.


Solar-panel manufacturers face growing questions of viability for a host of reasons, including:


Weak solar demand: Oil prices have once again ticked up to $100 per barrel, but it remains a very expensive task to install solar panels. Energy prices just aren’t high enough to make the switch worthwhile in the short term. Besides, many consumers don’t have the extra money, and many businesses are more concerned with preserving capital and staying defensive than winning points for reducing carbon emissions. European nations were some of the biggest buyers of solar panels thanks to rich subsidies and government projects, but obviously debt concerns have squashed that spending.


Rock-bottom solar prices: The irony is that solar panels are more affordable than ever before thanks to low-cost producers in China who have not just moved prices lower, but saturated the market with too much supply. The result is fire-sale prices on solar panels just to deal with the abundance of inventories.


The Solyndra debacle: The bankrupt company that received more than $500 million in funding from the federal government might be a political football in an election year, but it also is a warning bell for the entire solar industry. More oversight and the elimination of subsidies could squeeze the struggling sector even more.


All this has added up to a grim outlook from First Solar, the largest U.S. solar cell company and one of the top manufacturers in the world. Earlier in 2011, FSLR reduced its revenue guidance to $3.6 billion to $3.7 billion for this fiscal year. In October, it cut its outlook again to $3 billion to $3.3 billion in total sales on the year. And today, sales projections were lowered yet again to $2.8 billion to $2.9 billion for the fiscal year.


That’s not a good sign.


The challenges at First Solar are shared industry-wide as sales dry up and profits evaporate -- just look at the flop of other solar stocks in both the U.S. and China. The Guggenheim Solar (TAN) exchange-traded fund is off 63% so far in 2011 thanks to the poor performance of its components, which include:

  • China’s LDK Solar (LDK), off 5% Wednesday and 56% since January.
  • America’s SunPower (SPWR), down 9% Wednesday and off 55% year-to-date in 2011.
  • China’s Suntech Power (STP), off 5% Wednesday and down 71% in 2011.

So is the sun setting on solar permanently? Probably not. Some folks anticipated this selloff and have held it up as a buying opportunity in solar stocks. It’s a risky business to call a bottom, but it’s worth noting that First Solar still is profitable even if LDK, SunPower and STP have trouble staying in the black. Consolidation probably will take place and separate the winners from the losers in this emerging industry -- and the best solar companies could come roaring back in a year or two as competitors go under.

Of course, investors have to make sure they pick the winners and not the losers. First Solar could be on Easy Street if it can only stay afloat long enough to outlive its failing competitors … but there’s always the risk that First Solar could be a company that fails, too.


Jeff Reeves is the editor of InvestorPlace.com. Write him at editor@investorplace.com, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. As of this writing, he did not own a position in any of the aforementioned stocks.





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2Comments
Dec 14, 2011 4:45PM
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It seems that companies advertise their products or even do informercial about them yet I have not seen such adverts regarding solar energy or even any other green energy products. Why?

Perhaps these companies who do install solar panels etc need to advertise on the TV etc so that homeowners can be aquainted with and see the the product and products?

The idea that homeowners etc are not interested in solar energy is not true especially if your home is run on electricity only...

Why is it that businesses get better subsidies from the govt than the homeowners? For example I read some time ago that Walmart was trying solar on some of their stores... no doubt well subsidized by the govt program.... as if they need it.

Also why is  the sun supposedly setting on solar stocks? Think oil is going to last forever?

Many of these solar companies too the govt subsidies and then in their greed moved their factories overseas.... LOL. 

Wonder when some of these companies will wise up and start finding ways to incorporate the panels in new builds?   How about making it more affordable and easier to do the retrofit?

I see some homes in my area who have had the panels installed or being installed... it was the first time that I found out that there were companies other than say Home Depot that did that sort of thing. 

It seems that this country has given away so much of its intellectual property for free overseas that we have given away our intellect also..... as there seem to be very little to no new ideas coming out of anywhere these days....LOL

 

Dec 14, 2011 4:50PM
avatar
I doubt it!!Solar is here to stay..It is a different story,if the operators cannot manage their business in  an ordely manner...Too Bad..   Al Sayee(B.A.Economics)
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