The largest North American manufacturer of wind turbines is General Electric Inc (GE). But since wind energy is a very small part of GE's business, I will not cover it in this article. Siemens AG (SI) is similar in that regard to GE. United Technologies Corp. (UTX) is nearly as diverse as GE, but appears to have a larger stake in the growth of alternative energy. First Solar, Inc. (FSLR) and Sunpower Corporation (SPWR) are two leading domestic solar companies. I will analyze these renewable energy providers using their pasts as guides to their futures.
Vestas Wind Systems A/S (VWDRY.PK)
The world’s leading wind energy system provider is Denmark based Vestas Wind Systems A/S (VWDRY.PK). It manufactures and sells wind turbine systems in Europe, the America's and Asia Pacific. It was trading recently at about $3.50 per unit, near the low end of its 52 week range of from $14.94 to $3.35. It has a market capitalization of $2.1 billion, and a P/E of 26. It does not pay a dividend.
It has been a rough year for Vestas. Its home market, Europe, where Vestas usually receives about 50% of its business, has been beset by financial uncertainty. Its next most important market, the United States, is similarly difficult to plan in as tax support for wind energy is currently scheduled to expire year end 2012, and it is no certainty the financial support will continue. It is estimated that new wind energy installations would fall up 85% if tax subsidies are allowed to expire. Asian markets have become dominated by Chinese companies, who benefit from firm long term commitments from the Chinese government.
Vestas reported an awful third quarter to 2011. Revenues fell by over 30% to $1.744 billion. The company suffered a net loss of $78 million. Manufacturingproblems as well as demand problems beset the loss. Vestas is now trading over 70% below its year ago level. While its balance sheet is not in dire straights, its business is under siege in all its markets. I wish things were better for Vestas, but I cannot endorse an investment in it.
United Technologies, Inc.(UTX)
UTX is a large and highly diversified conglomerate with brand names such as Sigorsky Helicopter, Carrier HVAC systems, and Pratt and Whitney aircraft engines. Of particular interest is UTX’s commitment to clean energy. In late 2009, UTX bought 49.5% position in Clipper Wind Energy, at the time the third largest wind turbine maker in the U.S., for about $270 million. Then in December 2010, UTX spent an additional $112 million to acquire the balance of Clipper. Clipper makes only one product, a wind turbine rated at 2.5 megawatts. The idea is that with UTX's vast technological and logistical resources, Clipper can expand and improve upon its product line. In addition to wind energy, UTX has a long standing interest in clean energy friendly fuel cell technology.
Overall, UTX was trading recently at about $74 per share, and has a 52 week range of from $91.83 to $66.87. It has a market capitalization of $67.2 billion, and a P/E of 13.9. It pays a dividend of $0.48 per quarter, for an annual yield of 2.6%.
As an industrial conglomerate, UTX is well equipped. Roughly 35% of its revenues are maintenance and parts services for products it sold. Each of its units holds a leading position for its respective industries. It has raised its dividend 17 years in a row, and has a solid 1.8 mean analyst rating. Of course, there is far more to UTX than its energy division, but it is a fine company, and worthy of consideration by those interested in growth and income.
First Solar, Inc. (FSLR)
FSLR is, by a wide margin, the leading solar manufacturer in the United States, and is also the largest in the world. Its entire product is of the thin film type, which while is not state of the art at energy conversion, is the most widely used type in large, utility scale installations.
FSLR was trading recently at about $35 per share, near the low end of its wide 52 week range of from $175.45 to $29.87. It has a market capitalization of $3 billion, and a P/E of just 5.7. It does not pay a dividend.
FSLR has an ugly chart since late February, when it began its precipitous decline from the 52 week high. The decline in the stock price reflected investors concerns that FSLR's growth was slowing. Yet in the third quarter of 2011, things were healthy enough. Revenues were up some 26% from the year earlier quarter to just over $1 billion, and net profits were up a little over 10%, to $197 million, or $2.25 per diluted share. In the quarter, FSLR sold its hugeTopaz solar facility in California to MidAmerican Energy, a subsidiary of Berkshire Hathaway, Inc. (BRK-A) for $2 billion.
In December, 2011, FSLR lowered its profit estimates for the fourth quarter of 2011 and all of 2012. It estimated roughly $4 per share profits in 2012, which would amount to about a 25% fall from expected full year 2011 profits. It also announced its intention to pursue large scale utility business, at the expense of small retail business.
Unfortunately, the macro issues of the solar industry, such as real or pending loss of tax subsidies world wide and repercussions from the Solyndra bankruptcy, have hammered the sector. FSLR is in no imminent danger of bankruptcy. Its cash and short term investments swamp its indebtedness, and its long term debt is just 14% of capital. There is no question in my mind that FSLR has been oversold. Investors might want to look at this issue for a few months to ensure the bottom is behind FSLR, and not ahead of it.
Sunpower Corporation (SPWR)
Sunpower is the world leader in higher efficiency, crystalline solar panels. Its stock was trading recently at about $6 per share, near the low end of its 52 week range of from $23.36 to $4.94. It has a market capitalization of about $600 million. It does not have a P/E nor a dividend.
SPWR is in the process of a substantial restructuring. It bought from French giant Total, SA (TOT) its Tenesol Solar Power unit for $166 million, in return for which Total, already a majority shareholder of SPWR, increased its stake to 66% of SPWR. This vote of confidence from TOT is sorely needed by SPWR at this time.
In the third quarter of 2011 revenues were up 28% on a year over year basis. But margins were squeezed, and with the help of a $350 million one time charge for goodwill write offs, SPWR posted a loss of $371 million, or $3.77 per share. Even without the charge, the margins, which are affecting all solar panel makers, are off terribly. There is a supply and demand discrepancy in solar cells and panels, and not all companies will make it through. Solyndra was just one of several likely bankruptcies in the solar industry. With its unique crystalline solar panels, and the financial technical support of Total, I expect SPWR to be one of those survivors. Speculative investors, take a look.
About the author:
At Investment Underground, our editors are disciplined, independent thinkers who will inform you when to buy undervalued investments, recognize catalysts, and sell when full value is realized. We provide timely, detailed analysis of our value investing strategies and help you achieve your goals of a reduced-risk trading environment.
If you are fed up with volatile markets and manipulation that put your financial well-being in jeopardy, join us to achieve those gains you deserve without the headache.