Evergreen Solar Spruces Itself Up

UPDATED The rising tide lifting up most solar stocks has so far had little effect on Evergreen Solar’s boat, but now it looks like that may be changing.

After rallying as high as $17.48 a year and a half ago, shares of Evergreen (ESLR) have sagged, spending most of the last year below the $10 level. But news that has been coming out since late last week has recharged the stock and elicited moderately bullish comments from analysts.

Shares of Evergreen closed Monday at $11.51, closing up 25 percent in two trading days. One spark igniting the rally was a 15 percent rise in revenue in the third quarter over the second quarter, to $15.4 million. The midpoint of the revenue that Evergreen is expecting from the current quarter is $16.3 million. At the same time, gross margin rose to 25 percent from 22 percent in the second quarter.

Evergreen is still expected to post operating and net losses once again this year for the seventh straight year. So why the investor cheer? It seems it’s because the money the company has been investing is getting closer to bearing fruit in terms of solar cells and modules.

In its latest quarterly report, Evergreen said it broke ground on a facility in Massachusetts that is expected to be fired up by late 2008 and at full 75-megawatt capacity in early 2009. And EverQ EnerQ, Evergreen Solar’s European joint venture with Q-Cells AG of Germany and Renewable Energy Corp. of Norway, is also getting ready to be spun off via an IPO.

In June 2006, EverQ EnerQ opened a factory, with a capacity of 30 megawatts, in Thalheim, Germany, which quickly provided jobs to 400 workers. Soon after, the joint venture broke ground on a second factory that would start hiring as many as 350 workers this year. A third factory will bring capacity to 180 MW by 2009 and EverQ EnerQ hopes total production capacity will reach 600 MW by 2010.

Until last December, Evergreen owned 64 percent of EnerQ but has since trimmed is ownership back down to a one-third stake. EverQ’s EnerQ’s accelerated ramping-up of production capacity had added to Evergreen’s losses. (On its own, EverQ EnerQ posted a $4.9 million loss on $31.3 million in revenue in the second quarter of 2007). Under the new arrangement, Evergreen sells solar panels made by EverQ under its own brand.

Despite the media buzz that news of an IPO can generate these days, the specifics of any pending offering of EverQ EnerQ shares remains discouragingly vague. Evergreen wouldn’t say when, where or how big the IPO would be, and the owners of EverQ EnerQ are leaving lots of room to back out. I loved this line in Evergreen’s announcement:

Evergreen Solar, REC, and Q-Cells have executed a binding memorandum of understanding detailing the required steps to prepare EverQ for its IPO.

That’s a binding agreement to come up with a plan, no more.

And if EverQ EnerQ is going to be investing in a 600 MW capacity for the next several years, that means spilling red ink for some time. So the benefits that an EverQ EnerQ IPO could bring to Evergreen as a shareholder are far from guaranteed.