We are maintaining our Neutral recommendation for Evergreen Solar Inc. (ESLR). Its near-term share price may be impacted by continuing losses due to start-up costs, capital expenditures, apprehension over subsidy roll-back in Germany and the absence of deep pockets (unlike its peers).
It competes with the likes of SunPower Corporation (SPWRA) and JinkoSolar Holding Company Limited. (JKS).
Massachusetts-based Evergreen Solar engages in the development, manufacturing and marketing of solar power products worldwide, including solar cells, panels and photovoltaic systems. The company, through its crystalline silicon technology known as String Ribbon, uses approximately half the silicon for manufacturing wafers, compared to peers using the conventional sawing method.
These modules are designed for a range of solar electric power applications, including water pumping, communications, outdoor lighting, rural electrification, recreational vehicles and stand-alone or grid connected AC applications. The company sells its products through distributors, system integrators and other value-added resellers.
Evergreen Solar caters to a geographically-diversified market spread across the U.S. and Europe. The company is also focusing on China and Eastern Europe, where government subsidies on clean energy are in the offing. The company’s other focus areas include Korea, parts of Australia and Japan.
Per the U.S. Department of Energy, worldwide demand for electricity is expected to grow by over 50% from 20.6 billion MW hours in 2010 to 31.8 billion MW hours in 2030. This will provide the company with an ideal platform to grow its business through its geographically-diversified and disparate customer base.
String Ribbon technology gives Evergreen Solar a technological edge over its peers. By using this technology, the company saves nearly 50% more silicon per pound of wafer production than conventional methods. This enables Evergreen Solar to manufacture solar wafers, cells and modules more efficiently than its peers.
With the current silicon consumption of just around 3.6 grams per watt, the company is among the industry leaders in efficient silicon consumption and uses approximately half of the silicon used in conventional sawing processes.
Evergreen Solar is moving its manufacturing operations wholly to China and is closing its Devens facility in the process. The company expects to lower its silicon consumption to approximately 1.5 grams per watt by 2014 through rising demand for its String Ribbon Technology products, as well as through production ramp-up and gradual improvement in technology.
The company also aims to reduce its wafer manufacturing costs to approximately $0.25 per watt by the end of fiscal 2013 through higher volume, improved yields and cell conversion efficiency.
The above positives are challenged by the intended rollback of the lucrative subsidy program in Germany. In fiscal 2010, the company generated 61% of product sales from Germany alone.
Another grey area for the company is customer concentration. It generated the lion’s share of its fiscal 2010 revenue (80%) from only ten customers. Unless the company succeeds in broadening its customer base, there would be ample business risk if even a single contract was canceled.
Despite being a major manufacturer, Evergreen Solar has not been profitable. The company at fiscal-end 2010 had an accumulated deficit of $1.1 billion. Looking forward, with a higher amount of manufacturing capacity for low-cost solar products going operational in China, the company faces the industry-wide apprehension of lower average selling prices (ASPs).
Evergreen Solar in the near-term however holds a Zacks #4 Rank, which translates into a short-term Sell rating. In the near-term, the performance of Evergreen Solar will be affected by the transition phase of manufacturing from Devens to Wuhan.
The company will gradually scale down manufacturing at its Devens facility and ramp up production at its Wuhan facility. However, until the Wuhan facility starts operating at full capacity, performance of the company will likely suffer.
EVERGREEN SOLAR (ESLR): Free Stock Analysis Report
JINKOSOLAR HLDG (JKS): Free Stock Analysis Report
SUNPOWER CORP-A (SPWRA): Free Stock Analysis Report
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