Despite a week-long winning streak in the markets, solar stocks have attracted few bullish investors. Despite the long-term growth prospects of the world’s most popular alternative energy source, the rewards are outweighed by the risks – namely stagnation in richer, developed markets coupled with a higher demand of cheaper energy sources in emerging ones. Right now, emerging markets in Latin America and Asia are in favor, while Europe, Japan and America are regarded as dead money. Europe, America and China are currently the largest consumers of solar power.
Market leader First Solar (FSLR: Charts, News, Offers) plunged from over $300 per share three years ago to around $130, as Chinese favorite Suntech (STP: Charts, News, Offers) fell from over $80 per share to under $8. As these better known names have fallen out of favor, Baoding,Hebei-based Yingli Energy (YGE: Charts, News, Offers) has appeared on many analysts’ watchlists. Yingli has suffered the same fate as its solar peers, plunging from $38 per share in early 2008 to around $8 per share in recent trading. What separates Yingli from the pack, and can it bounce back with a recovering market, or is it doomed to languish in the bargain bin of solar stocks, where trading below book value has become the norm?
Daily Chart
Yingli Energy is best known for its flagship brand, Yingli Solar, one of the world’s largest vertically integrated manufacturers of photovoltaic solar modules. The company has a workforce of 6,000 worldwide with 10 sales offices – spread across Germany, Spain, Italy, Greece, France, South Korea, China and the United States. Yingli made headlines in the United States by controlling over a fourth of California’s solar market – the largest in the United States – dwarfing Suntech’s 10% share and the 16% position of all American solar power companies combined. California is widely considered to be the most progressive of the American state governments in green energy, and its success there bodes well for the future of the company. The company produces polysilicon ingots, wafers, photovoltaic cells, modules and integrated systems. Polysilicon ingots and wafers are the backbone of the company and essential to the company’s cost control and quality. Due to the exchange rate and labor costs, it is estimated that it costs 20-30% less to produce in China that in Europe. Unlike its industry peers, the company does not develop costly full scale solar projects.
In May, shares of Yingli began their decline, after the company missed its first quarter earnings. The company’s revenue increased 41% to $527 million, but missed the expected $573 million. It also missed on earnings per share by a penny, coming in at 38 cents. The company took a hit due to solar policy changes in Italy and adverse weather conditions in Germany. Italy, which accounts for 21% of global solar panel installation, reduced its green energy subsidies in March due to the country’s worsening debt. Germany, the world’s largest solar consumer, had already cut solar subsidies by 13% and currently accounts for 40% of global solar panel installation. Yingli’s module shipments dropped by a low teen percentage from the fourth quarter, although it expected its shipment volume to increase 30% in the second quarter. The company also reaffirmed its shipment forecast of 1.7 to 1.75 gigawatts for the year. Regarding its European woes, the company stated that a third of its European customers had been loyal customers of Yingli, staying with the company for over three years, and that it expected to recover from the short-term impact of its current troubles.
Two larger factors will influence Yingli’s future. First, a global price war has erupted as competitors undercut each other in order to increase their market share, despite unclear future demand. Solar power companies are currently so obsessed with increasing their presence that many analysts have speculated that they are willing to sacrifice margins in order to grow or maintain their market share. Yingli’s gross margins have declined from 33.3% in the third quarter of 2010 to 16.5% for the first quarter of 2011 These numbers are the battle scars of this ongoing war. This pricing war will likely escalate as larger players such as General Electric (GE: Charts, News, Offers) and Samsung, which are diversified and have much less to lose, vie for a piece of the pie. Second, future demand for solar power is speculative at best. Although there are reports of large scale projects in China and Europe, there is little evidence to suggest that this growth will outweigh the rapid rise of emerging markets reliant on coal, natural gas or nuclear power. Combine self-sacrificing margins with a cloudy global outlook and it’s easy to see why Wall Street hates solar stocks, despite projections that its home country China is on track to become the world’s largest solar market by 2014. However, the stock has been flattened this year, and downside appears to be limited – it currently trades with a trailing P/E of 5.18 and a price-to-book ratio of 1.08.
Other News About YGE
Etrion Signs 10 MW Agreement with Yingli Green Energy for Solar PV Modules
Yingli moves forward in Italy despite challenges.
Yingli Green Energy Hold. Co. Ltd. (YGE) Downgraded by Goldman Sachs (GS) to “Sell”
Yingli gets hit hard on Goldman’s downgrade.
Other Stocks in the News
New Disney cruise ship sails with a full house
Disney’s new cruise business is a hit.
Google seen posting sharp second-quarter gains
Despite two disappointing quarters, analysts believe Google can rebound.
Copyright 2011 by InvestorGuide.com, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc.
No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions.
We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA InvestorGuide.com, Inc.) or its employees responsible.
Other relevant articles you may like
Leo Sun is long-time market follower and finance writer. He regularly contributes to the Stock of the Day analysis.
