Monday, August 22, 2011

Yingli Green Energy (NYSE:YGE): Tide turning? Avian & Piper upgrading

Yingli Green Energy (NYSE:YGE) is getting two upgrades from relatively smart operators this morning:

- Piper Jaffray is upgrading YGE to Overweight from Neutral with a $8 price target (prev. $11) noting the company solidly cemented its status as a tier 1 solar PV module supplier, as it continued to gain share through a difficult 1H11 by leveraging its low cost vertically integrated model and very strong brand recognition. YGE saw its shipments rise 36% q/q, while some tier 2/3 module suppliers struggled to maintain flattish shipments. Management expects shipment growth to continue in 2H11 as demand continues to improve, with expected price declines offset by declining costs, enabling YGE to maintain gross margins in the mid-high teens. Additionally,
YGE's PANDA module remains one of the highest efficiency modules shipping out of China today (20% of 2Q shipment, 80mw). Piper believes the significant pullback in the stock presents an excellent opportunity for investors to own one of the leading vertically integrated low cost module suppliers.

- Avian Securities is upgrading YGE to Positive from Negative with a $7.50 price target, representing 43% upside from current levels.

The seasonal trade in solar stocks will likely be compressed to just a few short months given the earlier demand delay caused by the subsidy uncertainty in Italy, but Avian finds YGE as a current outlier to the group that is likely seeing the early signs of the seasonal momentum coupled with increased market penetration. Following a decent Q2 report with both upside to revenue and EPS, the forward outlook was reaffirmed and is good enough to ease our near-term demand concerns. Avian notes waiting to upgrade after the PVSEC show in early September would put them in with the rest of the herd, but they hear the early signs from management’s comments that demand is increasing now for the seasonally strong solar installation period. The firm finds now is an opportune time to ride the wave of the solar trade, and to take the first dip with shares of YGE.

Notablecalls: Couple of points here:

- Piper's Zaman cut YGE back in March helping his clients avoid some of the slaughter in the name.

- Avian only recently picked up coverage in the space but their guys are well respected. I'm told by Avian they are definitely transitioning from a very negative opinion on the entire sector, to some positive opinions ahead of the seasonally stronger 2H.

That makes the YGE call potentially more significant. The co seems to be best-of-breed here (lowest cost producer etc.) and that's exactly the type of stuff you may want to be buying.

YGE has been crushed, so I expect a potentially explosive move off lows. The $6 per share level seems like the first logical stop in the n-t.

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