Worldwide Energy and Manufacturing (fka WEMU)

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Better believe it: solar stocks recover
Thursday, 04 March 2010 10:02 Blaze Fabry

http://www.chinavestor.com/solar/71400-better-believe-it-solar-stocks-recovery.html


solar3 March 4, 2010 (Chinavestor) Chinese solar companies have started to report latest earnings and so far the picture is better than expected. JA Solar (NASDAQ:JASO), a mid size solar maker, started the solar earnings season earlier in February - and reported above analysts expectations. Industry heavy weight Trina Solar (NYSE:TSL) surprised the investor community to the upside at the end of February. The market started to take note after Canadian Solar (NASDAQ:CSIQ) earnings blew past expectations on Wednesday. Another industry leader, Suntech Power (NYSE:STP), reported before the open on Thursday giving investors a chance to examine the sector very closely.

Earnings of Suntech Power (NASDAQ:STP) is very important because when industry leaders recover and their stock price follows, that trickles down to the rest of the sector. Investors remain cautious with the solar sector - despite strong results. The truth is that the solar sector spooked investors once - back in 2006 when the picture was rosy and valuations flew out the window. But as the bubble burst and share prices fell to the fraction of previous prices, investors think twice before engaging the sector again.

However taking past hurts to the side and looking at the numbers only, there is a lot of reason for cheer. Solar companies have returned to profitability in the second part of 2009 - as was evidenced by 2009 Q3 numbers. Remember, each and every Chinese solar company returned to the black - a significant development for the sector. But the story doesn't end there.

As the following chart testifies, mid size Canadian Solar (NASDAQ:CSIQ) have bounced back strongly with a solid outlook for the quarter.

CSIQ_09Q3_estimates

The latest developments suggests the financial health of the sector is recovering, margins have stabilized while shipments skyrocketed. And while revenues have not fully recovered year-over-year since 2008, current trends suggests 2010 will be a year for solar stocks. To illustrate this claim, take a look at the following chart.

STP_09Q_revearnings_two

The first part tracks revenue and earnings growth for Suntech Power (NYSE:STP) 2004-2009. While profits have significantly improved in 2009, they're still way below record 2007 levels. Revenues fell from 2008, raising questions if profit growth was sustainable.

But if you zoom in the last six quarters, a totally different picture develops. The sector have bottomed out earlier in 2009. Revenues - and shipments - have been recovering steadily, margins firmed up while profits grew. The only component of the picture lacking momentum is stock price!

But that won't last long. Investors better believe that recovery is in the works and buy solar stocks in the cheap.