Stock by Stock, Is Solar Coming Back?

One by one, the erstwhile stars of the solar sector are coming back into the sunlight. Now it’s Suntech Power’s (STP) turn.

The Wuxi, China-based company saw its stock rally more than 12 percent to $41.75 Wednesday after earnings showed revenues in the second quarter were up 51 percent from the same quarter a year earlier to $480 million. Analysts had been expecting $439 million.

Net profit also beat expectations, rising to $65.2 million, or 38 cents per American depository receipt, better than the 32 cents per ADS Wall Street had been expecting.

Gross margins rose to 24.1 percent in the second quarter from 20.3 percent a year earlier. Pretty good in itself, but what investors liked was that the company said it saw polysilicon costs dropping 20 percent next year and that contracted prices over the coming year were better than expected.

In May, Suntech bought a minority stake in Chinese solar-wafer maker Shunda, sealing a 13-year supply agreement with the company. The company said in a conference call that 45 percent of its polysilicon came from the spot market in the second quarter, and that ratio should remain the same for the rest of 2008.

Then there was the other area of concern for Suntech: Spain, which has been signaling an end to its solar subsidies. Some 44 cents on the dollar that Suntech made last quarter came from Spain. But as CEO Zhengrong Shi said in a conference call, there may be other countries that would pick up any slack left from Spain.

“You look at the Italy market, the France market they’re getting very, very strong and we sort of can imagine the Italian market next year will be in the similar situation as the Spain market is this year, okay. Of course there is some uncertainty about the Spanish market… but still I mean with additional increase from other markets, we don’t see it as a big deal and also like France and Greece and Czechoslovakia and Korea there’s a full increase of demand and in Japan we reintroduced the subsidy and all this put together, I mean like we have signed the half contract like already in hand and we’re very close to close further contracts, so that all indicates the market is fairly strong.”

One thing I like Zhengrong Shi: He talks like most of us would on a phone call. And investors seemed to like what he said, like when Suntech raised its estimates for revenue in 2008 to a midpoint of $2.1 billion from the previous guidance of $2 billion.

So after a few long months of slumping, solar stocks are coming back one by one. First SunPower surged on its deal with PG&E, now Suntech. It’s may just be enough to give hope for a beaten-down sector with long-term potential.

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