Solar In Spain: Are Stocks Pricing In An Unlikely Worst-Case Scenario? - Cowen & Co

Cowen notes Solar stocks have been pummeled by concerns about a potential sharp drop in Spanish solar subsidies. In firm's view, a proposed 2009 cap of 300MW is unlikely to become law, as it would cause significant job losses and business closures. Unemployment and economic growth are the major issues for the Spanish government. The power sector has accumulated a large deficit, because regulated prices have not kept pace with fuel costs, underscoring the case for renewables.

They see Outperform-rated thin-film players ENER ($64) and FSLR ($253) as best-positioned, but believe Outperform-rated ESLR ($9), SPWR ($64) and STP ($35) are also oversold.

Modules are fungible across PV markets, so they believe that 2009 industry volume of about 9GW is achievable, but a smaller Spanish market implies lower ASPs (perhaps down 15% for c-Si players, vs. our prior 10% est.). ENER and FSLR have not seen ASPs skewed upward by Spain and have higher gross margin. Moreover, ENER benefits from higher roof and BIPV tariffs. SPWR and STP should benefit from a lower blended-cost silicon portfolio next year, while ESLR has no spot-poly exposure and should see margin expansion from the ramp of Quad-ribbon technology and the new Devens plant.

Notablecalls: I don't have great conviction in this one but we may see a slight bounce in the Solars in the n-t.