Setting up a solar power system up here in the Laurentian hills in late May means fighting the black flies. The little buggers like to swarm around your face and bite behind the ears. Makes you wonder why you bother trying to save the environment when the environment wants to bite a chunk out of you and suck your blood.
With the distraction of black flies, solar panel deliveries, construction issues, calling contractors, etc. I almost missed the bat-out-of-hell rally in solar stocks. On May 20, someone or something lit a fuse under a bunch of solar stocks — companies I have discussed before. And they took off.
In one day, Jinko Solar (NYSE:JKS) and Trina Solar (NYSE:TSL) were up over 20 percent. Canadian Solar (NASDAQ:CSIQ) was up over 17 percent. Hanwha Solar (NASDAQ:HSOL) was up over 30 percent. And the really big winner was Real Goods Solar (NASDAQ:RSOL), which catapulted over 250 percent in a couple of days.
As usual, it appears to have been a combination of factors that caused this solar stock flare-up. On May 16, SolarCity (NASDAQ:SCTY), the company that leases solar energy systems, announced a $500 million financing from Goldman Sachs (NYSE:GS). This infusion of cash will help SolarCity finance about 110 Megawatts of new solar power projects — requiring tens of thousands of solar panels.
There has been much discussion lately about a possible European Union antidumping duty on Chinese manufactured solar panels. The talk was of a duty in the neighbourhood of 50 percent. This possibility obviously kept a damper on Chinese solar stocks. But around May 20th, there were reports about work on a negotiated settlement between the European Union and China that might also include the US. This theoretical deal would introduce quotas on Chinese solar panels instead of tariffs. These rumours helped the stocks of Chinese solar manufacturers.
The Germans, who benefit from healthy auto and machinery exports to China, are not keen on the possibility of a trade war. After a meeting last week between Chancellor Merkel of Germany and China’s Premier Li Keqiang, the German leader announced that she opposed punitive tariffs. However a subsequent meeting between a Chinese solar industry trade group and EU officials broke down with no agreement and trading accusations.
New developments on this front could happen at any moment and may sharply move the stocks of solar manufacturers, Chinese and others. Chinese solar stocks had brief setbacks after news of the breakdown in talks. But then the stocks quickly caught a bid.
Another factor contributing to the solar stocks sizzle was the first quarter earnings report from Chinese solar panel manufacturer JA Solar Holdings. That company showed a slight improvement in margins and also a slight increase in the average selling prices for solar panels. This was the first glimmer of hope in years that the pricing death spiral for solar panels is beginning to slow down.
Combine a few bits of possibly positive news and the highly combustible short position in many of these solar stocks, and you get lift-off.
Real Goods Solar
At first glance it’s hard to understand why Real Goods’ stock tripled in price in two days.
The stock was $1.37 when I wrote about the company in December 2011. On Friday, May 17, Real Goods popped from just under $2 to just over $4. On Monday May 20, the move continued and Real Goods traded over $7 before settling down at just over $6. These gyrations were happening on huge volume. Real Goods has a small market cap — about 26.7 million shares outstanding. The float is only 8.4 million shares. On May 20, there were over 32 million shares traded — more than the total number of shares outstanding.
What caused this frenzy?
Earnings for the first quarter were released May 8. The company increased installations of solar panels by 23 percent. That’s the real good news. However, revenues at $16.8 million were down 8 percent from the same period last year. The company blames competitive pricing in the solar installation market. This competition hurt gross margins, which were down to 27.4 percent of revenues from 35.2 percent last year.
Real Goods lost more money in the quarter — $3.8 million US for the first three months of the year versus a loss of $1.9 million for the same period last year.
All in all this was a relatively weak performance, and no reason for the stock to triple in price a few days after the report. But Real Goods has been making some headway of late and there are signs that future quarters will look better.
In February, Real Goods announced a deal with an un-named “major” homebuilder. All new housing developments in California by this homebuilder will have solar power systems as standard features. These solar power systems will be installed by Real Goods. At the earnings conference call on May 8, it was revealed that the homebuilder is Lennar — one of the premier homebuilders in the US. There is hope that Lennar will add solar power features to new developments in other “solar-friendly” states in the southwest.
In April, Real Goods announced a big deal with the Unified School District of Stockton California. Real Goods will install solar power systems with a total value of about $20 million on 18 schools in the district. The School board will save money on its utility bills starting year one of a 25 year agreement. Financing for the deal is supplied by Smart Energy Capital.
Along with the first quarter results, Real Goods announced that the company is launching a low-priced solar power package called PowerOn. These packages include the equipment, installation, hook-up to utility, etc. These packages start at under $6000. The company is growing installations and even though margins are falling, Real Goods expects to see increased revenues this year.
After the big blast-off on May 20, Real Goods’ stock has been dropping back to earth. Volume has remained huge. On May 24 the company announced a finance deal. With the stock trading at a much higher price, Real Goods announced a private placement of 3.37 million shares for $2.75 a share, as well as issuing 1.68 million warrants expiring in five years to buy additional shares for the same price. The company will reap about $8.25 million after fees from the deal to start with.
The folks who bought the stock a few days earlier at $7 on the open market were likely not impressed by the deal, which appeared quite generous to the buyers of the private placement. The stock has been falling back steadily to close on Friday at $2.70 — below the price of the private placement.
You have to wonder how long Real Goods was planning this financing and whether the jump in all solar stocks affected the price. Or did the jump in price make this deal materialize? In either case, Real Goods now has more working capital to help grow the business.
Canadian Solar Inc.
Canadian Solar is a busy company. There may be a prolonged slump in the price of the solar modules they produce, but that doesn’t stop the company from manufacturing and selling them. Canadian Solar announced its first quarter results last week, and they were better than had been feared earlier in the year.
The company continues to innovate. Canadian Solar recently announced the introduction of its ResidentialAC panel. This solar panel comes with a built-in microinverter, so the panel delivers AC current without requiring any additional equipment from third parties.
This is a value add product for Canadian Solar — competing directly with companies that only manufacture microinverters.
Canadian Solar has also branched out to the solar project construction business. Like some other manufacturers of renewable energy equipment, Canadian Solar is developing its own utility scale projects — creating a market for the solar panels that the company manufactures.
Canadian Solar continues to win contracts to install large solar arrays – its own projects or in partnership with others. In February, the company announced a deal with Strata Solar, an engineering, procurement, and construction company to build a number of utility scale solar projects in North Carolina. The deal is for a total of 15 projects with a combined capacity of 85 Megawatts. The first project, the 6.4 Megawatt Fuquay Farm project, was commissioned at the end of February.
All 15 of these projects are expected to be finished by the end of 2013.
Separately, on May 13, Canadian Solar announced that a one Megawatt solar project in Sterling Mass has gone online.
Last week Canadian Solar released first quarter results and they were a mixed bag. The company sold solar modules with a total capacity of 340 Megawatts. Revenues were $264 million US for the quarter. These numbers were down considerably from the fourth quarter of 2012 when the company sold modules with a capacity of 404 Megawatts for $295 million.
The good news is that Canadian Solar has been cutting costs. Even though revenues were reduced, the company’s losses dropped to 10 cents a share for the first quarter versus a loss of $2.43 in the last three months of last year.
And there are other positive developments. The company continues to develop new markets around the world. Shipments of solar modules to Japan increased by 75 percent versus the last quarter of 2012, equalling almost 25 percent of total sales.
Cash on hand of over $600 million was higher than Canadian Solar’s cash balance at the end of last year. All in all, the report showed that the company appears to be turning the corner, and is still one of the major solar panel manufacturers in the world.
Canadian Solar’s stock shot up after the earnings release but has since settled back a bit. The stock has been climbing fairly steadily since I wrote about the company in January of last year when it traded at $3.23
It’s been quite a move up for Canadian Solar in recent months. The thing to do after looking at the chart of these solar panel manufacturing stocks is to zoom out and look at a 5 year chart. In most cases this latest spectacular move is a relatively minor blip in the long term.
The black fly season only lasts a few weeks. They will be gone soon. But the sun will keep shining, even in winter. I’ll get back to working on the solar energy project here next week. Hopefully it’ll be making electricity before too many weeks go by.
And I’ll keep my eye on the solar stocks.
Originally written for OilPrice.com, a website that focuses on news and analysis on topics of alternative energy, geopolitics, and oil and gas. OilPrice.com is written for an educated audience that includes investors, fund managers, resource bankers, traders, and energy market professionals around the world.
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