Sunday, March 9, 2014

The Future of Solar Energy and its Outlook in 2014

             It appears that nothing can stop the rampaging of the bulls this year, even as the world had its eyes on Ukraine and stocks all over the world fell on Monday, the markets bounced back on Tuesday and ended the week with gains.

                My last few articles I have been talking about the pros and cons of investing into certain industries, including casinos, electric cars, airlines, 3D printing and the pot industry. In this week’s article I want to talk about another industry, one that has been ripe with ups and downs, solar power.

                Solar energy is nothing new, and many solar energy companies like First Solar, Trina Solar Energy and Solar City have benefitted tremendously from last year’s bull market.

First Solar- Up 113% in the last year

Trina Solar- Up 332% in the last year

Solar City- Up 371% in the last year

                The question is how will solar energy stocks fare this year? Solar energy has traditionally been viewed as the best alternative to expensive and un-clean fossil fuels such as oil but in recent months the price of oil has fallen as the energy boom in the U.S continues. Also with natural gas also competing with solar energy it is possible that the solar industry might face serious problems in 2014.

                Personally I have had mixed results with Solar stocks, I briefly held shares of Trina Solar before selling them at minor gains and I held shares of First Solar for about a month until the stock fell 20% in the period of two weeks forcing me to sell at a moderate loss. So I have experienced the volatility of these stocks but the golden question is whether or not these stocks will continue going up.

                Various developments occurred in 2013 to help spark a comeback in solar energy stocks, first of all demand grew. Analysts estimate that solar demand in the U.S grew about 32% in 2023 and they are expecting another 35% gain in 2014. Another development that helped the surge in solar stock was when in June, 2013, Obama’s administration announced a new environmental plan that increased limits on coal powered plants. Coal produces 40% of the electricity in this country, and demand for it is falling meaning alternative energy like solar are picking up the slack.

                Without a doubt solar and other alternative energy products such as wind and hydro are the future, but it is questionable whether the solar industry could repeat the year it had in 2013. The drilling boom in this country and the abundance of oil and natural gas makes investing into solar energy look somewhat foolish.

                With that said however solar demand in the rest of the world is growing and solar energy companies competing in the international markets, like Trina could benefit.

Industry wise the solar industry could face problems in the U.S but flourish elsewhere around the world, but if you are a fundamental investor and critically look over the companies financials before investing solar energy might not be for you.

The solar energy industry is littered with bankrupt companies and financial disasters. Just take a look at First Solar in 2011. The leader of the solar energy industry saw its stock fall 70% in one year. Off course the market conditions in 2011 and now are different; the thing that did not change is that solar energy remains a capital intensive business with many solar energy companies drowning in debt.

Here is a brief snapshot of the financial health of several solar energy companies.

First Solar Inc.-

                First Solar is one of the largest solar energy companies in the world with a market cap of $5.6 billion. Evaluation wise the company is fairly valued with a P/E ratio of 15.2x, matching the current market average.

 In terms of revenue and profit though the company is facing a serious problem, 4th quarter earnings came in at $768 million in revenue, this is about $497 million less than in 2012. What is more devastating for the company is its forecast for the 1st quarter of 2014. The company expects to earn between $800-900 million in revenue which was below the streets estimates of $894 million, E.P.S is expected to be between $.50-.60 a share, and way below analyst estimates of $.84 a share.

So in terms of growth and expansion First Solar’s financials paint a grim picture, but the company does have a few things going for it. First Solar is building a solar energy plant in Texas, which currently represents 10% of solar demand in the U.S.

But even with this new plant First Solar faces obliteration in the marketplace due to its product simply being inferior to the product of its competitors. First Solar modules are more expensive and are less efficient then the product produces by competitors.


Trina Solar-

                Trina is no doubt one of First Solar’s greatest competitors in the international market. This Chinese solar company has a market cap of $1.4 billion and is just barely profitable. But the Chinese solar market is recovering from a collapse in 2011, and 2013 has marked a year of rapid consolidation.

                This recovery is reflected in the company’s earnings, in the 4th quarter of 2013 Trina announced revenue of $525 million (up 73% from last year) and profit of $14 million, which is a considerable improvement over last year’s $70 million loss.

                Trina Solar’s growth mostly came from cutting $76 million in expenses, decreasing operating costs by 22% and growing markets in China, Japan and the U.K. Unlike First Solar I believe Trina has great potential to do well in 2014, especially as the company expands into new markets like South America.


These are not the only two solar companies out there, others like Solar City, focus on installing solar panels rather than build them. This strategy seems to be working with Solar Cities revenue up 79% year over year and upn15% since the last quarter.

So to conclude my analysis of the solar industry I want to say that 2014 might prove a tough year for solar companies focused on the U.S market. Those focused on the international markets on the other hand will flourish, another note would be that any person who is focused on fundamentals will not want to invest into solar since the industry is capital intensive and is vulnerable to the price fluctuations of products like silicon.