Shares of solar power technology firms are tanking following a note from Merrill
Lynch analyst Mark Heller cutting his rating on SunPower (SPWR) and Evergreen
Solar (ESLR) from “Neutral” to “Sell” because Germany’s government may cut
subsidies for solar by as much as 25%. Subsidies are currently necessary to
goose investment in solar power in many countries.
According to the Bloomberg account of things, Heller thinks analysts’
expectation of a 16% cut is too low. “An increasing number of politicians are
advocating a bigger cut to the German solar subsidy due to the escalating cost,”
Bloomberg quotes a Merrill analyst, Matthew Yates, as writing in the report.
The note follows another note that came out yesterday from Calyon Securities
analyst George Kotzias that claimed the escalating burden on taxpayers was
prompting the German government to consider cutting the subsidy by 15%,
according to the Associated Press. The US’s own investment tax credit is a
looming issue for solar later this year and next.
In the Merrill Report, which just appeared over the transom, I note that First
Solar (FSLR) is kept at a “Buy” rating, while lowering the bank’s price target
on the shares to $325 from $360.
First Solar is somewhat insulated from subsidy cuts, think Heller & Co.,
because its superior cost structure “is at least 2 years ahead of the
competition,” including Applied Materials (AMAT) and German manufacturer Q-Cells
(QCE.DE). Heller & Co. now think FSLR should trade at a multiple of 50x 2009’s
projected earnings, down from a multiple of 55x the analysts assigned back on
May 12.
Nothing in this article is, or should be construed as, investment advice.
Rohit
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