Suntech gets juiced

Wuxi, China-based Suntech Power (NYSE: STP) has been riding a solar wave of positive developments this week. But not too long ago, it had a hard time convincing the market that global demand was strong and that its polysilicon supply shortage could be fixed.

Suntech reported strong second quarter earnings and investors responded by driving up the price of the stock over the past two days. The company raised its 2008 revenue forecast to a range of $2.05 billion to $2.15 billion.

Analysts were pleased, for a change.

“Suntech has been in the market waning and about two months ago investors were wondering what kind of dynamic was underway in the solar PV market,” said Jonathan Hoopes, managing director, Greentech Research at ThinkPanmure in an interview with the Cleantech Group.

Some of the news that’s buoyed Suntech is its signing of 200 MW contracts for 2009 as well as 5 percent reduction in price for those shipments.

“The company has improved its polysilicon or wafer supply situation to 900 MW in 2009, thereby removing some of the company’s past hurdles,” Hoopes added.

Suntech said it expects to ship solar modules totaling about 550 megawatts of power this year. Its production capacity increased to 660 megawatts during the quarter—up 120 megawatts over the last three months—and the company plans to reach 1 gigawatt in capacity by the end of the year (see Solar PV still going through growing pains).

Recently, there had been investor trepidation because of concern global demand for solar PV would drop with Spain’s solar subsidies ending this year. But most of that uncertainty was unfounded, according to Hoopes, citing strong demand for solar PV from multiple countries.

Other financial analysts have also weighed in on Suntech with positive outlooks. Cowen & Company released a research note today that raised its estimates to an outperform rating on Suntech on the company's strong financial results.

Among Suntech’s competitors in the solar PV market are Kyocera Solar, Q-Cells and Sharp. Hoopes said that Suntech has roughly 20 percent market share in the solar PV market.

Suntech was constrained in the past because of polysilicon supplies. But it’s been able to get more wafers.

“They have the silicon situation ironed out,” said Hoopes.

“If early trends continue, pricing could end up falling in the 10 percent range for '09. Coupled with a 15 percent decline in wafer costs, next year could shape up to be another year of strong earnings power for solar PV companies in general, and Suntech in particular,” Hoopes said.

“In the meantime, with STP shares trading at less than 16x our next-12-month EPS estimate, it appears that the long-term risk/reward is more than baked into the price,” Hoopes said.

In terms of the outlook for 2009, "spot wafer prices are expected to decline significantly, and a strong cash position which enables the company to sign additional supply contracts and tap the spot markets if needed."

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