- 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.
Notablecalls: Note that Jeffco is upping their rating on SPWR to a Buy from Hold with a $170 tgt (vs $125). They may serve as a ultra short-term catalyst for the group, including STP. Please note that Jeffco has factored a 15% ASP decline for cells and modules in FY2009 and FY2010 into their estimates. Yet, they remain bullish on the space.