Friday, December 7, 2007

The glaring light of solar

Under the heading of better late than never, I finally pulled the trigger today on a small starter position in Suntech (STP). The final push came in the form of a post by RajinCajun linking to a Notable Call this morning by Jeffries (highlights below). Admittedly, this is more a case of not wanting to miss out completely on solar category growth than it is a brand play. But, what the hell, I can rationalize it around Suntech's P/E, right? And growing up with STP stickers on my Schwinn Stingray? Yeah? No? Okay. Well, c'est la vie. Anyway, now one more young'un to keep an eye on.

Suntech (NYSE:STP): Jefferies positive on solar space this AM
- Jefferies is positive on the Solar space this AM saying they believe that Suntech (NYSE:STP) is well positioned to rapidly accelerate cell and module production. Suntech recently announced a bolt to 1 GW of capacity by the end of 2008, two years ahead of plan. Over the next two years, the firm sees the company's cost structure benefiting from the introduction of higher efficiency solar cells, a transition to lower cost wafers through longer-term contracts, and declining market prices (particularly in 2009). Moreover, this could allow STP to absorb rapid module price declines while still maintaining margins—a scenario they have built into their forecast and EPS estimates for 2009.

Suntech has approximately $588 million in cash and positive operating cash flow, as well as very low capex costs per watt and a solid history of ramping production well ahead of expectations. Improved polysilicon supply relationships have muted concerns about raw material requirements somewhat.

They believe that investors may narrow the trading-multiple discount STP receives (25x) compared with SunPower Corporation (SPWR, Buy) (39x) on 2009 Street estimates, given Suntech's similar earnings growth pattern and declining risk profile as it relates to silicon as well as recognition of its potential to maintain margins in a declining price environment. STP's new price tgt is $108 vs $76 earlier.

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