Lower-cost manufacturers are emerging as market leaders in the solar energy space, as short-term overcapacity, pricing pressure stemming from Chinese competition and a move toward reduced subsidies creates a need for more efficient businesses, says Chris Kettenmann, Analyst at Miller Tabak + Co.
“Costs continue to decline and the cost leaders in the space have consistently outperformed peers. That’s where we’re putting our money now,” Kettenmann said. “Companies … that have a differential technological edge and cost profile versus their competitors will succeed. That’s where we’re really telling investors to concentrate right now.”
Kettenmann points to First Solar (FSLR) as his favorite name in the space. He says FSLR has the strongest balance sheet in the sector and the lowest cost structure, and Kettenmann says the company is expected to continue reducing its costs for its equipment to reach grid parity levels by 2015.
“We believe that [First Solar] will retain their cost advantage and be able to lower cost faster than the market is discounting,” Kettenmann said. “For value players who want to go at the highest-quality name in the group, we push them towards First Solar as it trades below 12 times our 2012 EPS estimate.”
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