Industry context
We initiate coverage of the US solar industry with
a Neutral coverage view. We see benefits from
large scale projects ultimately overwhelming
near-term challenges and accelerating the
transition from subsidized markets towards parity.
Source of opportunity
Utility projects in the US and China investment
should drive solar toward parity by 2012-2015,
sooner than the Street expects. As these projects
shape industry growth, we believe structural
winners will possess large scale, low cost, strong
balance sheets, and broad market access.
Catalyst
Our global team is raising our demand estimates
to 13 GW in 2010 and 17 GW in 2011, both 2-4 GW
(20%) ahead of consensus, driven by stable IRRs
despite lower subsidies. We believe higher-thanexpected
demand and price declines will
accelerate the profit share shift from high-cost
European manufacturers to First Solar and lowcost
producers in China.
Best buy idea
We initiate on First Solar with a Buy rating and
28% upside to our 6-month $150 price target.
Increasing exposure to US utility scale
installations should solidify visibility into our
above consensus 2011E EPS and dredge a wider
competitive moat for First Solar. We see First
Solar as a structural winner where (1) cost
advantages are increasing, not decreasing, and (2)
20%-plus ROIC and a solid balance sheet put it a
cut above the rest and drive strong equity returns.
We rate SunPower shares Neutral with 12%
upside to our $15 6-month price target.
Best sell idea
We initiate on shares of MEMC Electronic
Materials with a Sell rating and 15% downside to
our $9 6-month target. We see more risk than
reward versus peers owing to (1) a below
consensus and sub-peer margin recovery;
(2) higher execution risk and lower expected
returns given a more capital-intensive business
mix; and (3) lower financial flexibility and a higher
valuation than is commonly perceived.