Good Morning!
Nothing like a little solar research in the morning.
Energy Conversion Devices - http://www.ovonic.com/
From the company: Energy Conversion Devices, Inc. (Nasdaq: ENER) manufactures and sells thin-film solar laminates that convert sunlight to energy using proprietary technology. Distributed globally under the UNI-SOLAR® brand, the company's products are ideally suited for cost-effective solutions for roofing applications because they are lightweight, durable, flexible, can be integrated directly with building materials, and generate more energy in real-world conditions. ECD also pioneers other alternative technologies, including a new type of nonvolatile digital memory technology that is significantly faster and less expensive, ideal for use in a variety of applications, including cell phones, digital cameras and personal computers.
ENER got a big pop last week as they surprised the street and actually made money for the first time when they had predicted more losses. This was a very impressive quarter and the stock reacted as such by catapulting over 40% higher. This in part has helped by the large short interest that was in the stock at the time of the report. Going forward the company has a problem – they cannot keep up with demand. While there are certainly much worse problems to have, presently it looks like this will keep their growth in check (though still growing very rapidly through the next fiscal year) and the upside appears to priced into the stock.
ENER is currently trading above my high end estimates of $50. This is a 40 multiple on next year’s earnings. The company predicts expanding their capacity from 118 MW to 238 MW in fiscal 09. After that there is a drop off in production growth to 26% going from 238 MW to 300 MW in fiscal 2010.
A big issue facing the solar industry is the expiration of the solar tax credits at the end of this year. Honestly I have hard time seeing these not getting renewed given the energy environment which we are currently facing, but it is up to congress and they’ve done dumber things. ENER is currently focused on big corporate customers for large roof installations and many of them are international. They have 90% of their production for next year already bought so it may not affect them as much on the residential front, but after that the residential market is a huge opportunity that can’t be ignored.
Overall I expect demand to continue for ENER’s lightweight roof top solar panels and I imagine they will probably do what they can to raise their production limits above where they currently are in 2010. Grid parity will be easier to achieve with the tax credits and the increasing costs of electricity so if those continue to be tailwinds I think ENER will be very well positioned. The price of the stock is currently above what I would be willing to pay however. I think shares will probably pull back as we get closer to the tax credit debate and if/when energy pulls back. I’ll be looking for an entry closer to $40.
All of the above charts are telling me one thing - leave yourself open to some more selling. There was a clear failure at the test of the down sloping 200 DMA on the NAZ. The early move up was on tepid volume and the afternoon sell-off was on increasing volume into the close. The result was a bearish shooting star. The little curving pattern forming on the McClellan Oscillator is also interesting. We'll follow-up in a few days to see how it pans out. Leadership for this afternoon's sell off was courtesy of large cap tech names we know and love - AAPL, RIMM, BIDU, GOOG...
