Total has just announced its intention to acquire 60% of SunPower Corp. for around USD1.38 billion as global demand for solar energy keeps surging. This is a big seal of approval for the whole solar industry and should give other solar stocks more tailwind.
The move by Total signals that major energy companies, such as big oil, want a presence in the renewable energy space. This is also witnessed by Exxon Mobil’s big bet on next-generation biofuels from photosynthetic algae. Total’s acquisition is, indirectly, a friendly tender offer. The move endorses the direction the solar industry has taken the last couple of years and the growth prospects. It is also evidence that valuations are low compared to earnings growth potential and this should boost valuation of other solar stocks in the short-tem.
In our yearly outlook we said solar stocks, due to their relative valuation to wind stocks and their growth prospects, would return at least 30 percent this year. So far this year, the Guggenheim Solar ETF has risen 15.8 percent (see chart below), half way to delivering our target for 2011. Also fourth quarter earnings and sales growth rates were impressive, adding support for the rally in solar stocks.
The industry’s leading solar company, First Solar, will report first quarter earnings on Tuesday which will set the direction the next couple of months. Despite famous short-seller Jim Chanos being out with negative comments about First Solar (he has shorted the stock) and the industry in general, we believe solar stocks have more room as the industry is gradually becoming more competitive due to lower production costs and higher oil prices.
Source: Bloomberg
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