Analyst Cuts Estimates on Solar Stocks Following Proposed FIT Reduction in Germany (FSLR, CSIQ, STP, TSL, YGE)

An analyst at Collins Stewart issued a report on a number of solar companies this morning following news that German regulators have proposed a reduction in the country's feed-in tariff for roof-top and ground-based installations. The analyst considers potential impacts to several solar companies and their stocks.

The firm notes that the proposed 15% reduction is greater than the 10% reduction it had previously been expecting, and further, about three months earlier than forecast. The Collins Stewart analyst believes that this proposal, in addition to a weak stock market and Euro, have driven the 24% decline in US-listed solar module vendors since January 13.

"The 5% greater adjustment to the German FIT is expected to reduce solar module prices by roughly $0.05/w in 3Q10 and subsequent quarters. Due to the roof-top segment reduction being effective in April, a larger ASP reduction in that quarter is expected, since that quarter was expected to have strong ASPs due to a pull-in of orders in Germany as people rushed to have systems build before the FIT reduction."

The analyst sees a "modest impact on worldwide module demand in CY10" and lowers his global forecast by 400MW to 8,600MW. "All of that reduction is expected to occur in 2Q10 as the pull-in demand in
Germany is wiped out." Still, given declining module prices, the firm does not expect to see demand destruction in Germany after Q2.

Taking a look at some specific solar companies, Collins Stewart believes that low-cost suppliers such as First Solar and the China-based suppliers will be able to supply modules at these low price points, however, high-cost suppliers in Europe and Japan won't.

• Solarfun (Nasdaq: SOLF) - upgraded to Buy, $10 price target. Despite the reduction in the feed-in tariff, the firm believes that "other factors, such as additional capacity, offset the German FIT impact."
  
• First Solar (Nasdaq: FSLR) - reiterates a Buy rating, price target cut from $160 to $148. Firm lowers its CY10 EPS estimate from $6.45 to $6.29 and its CY11 estimate from $7.45 to $7.42.
  
• Canadian Solar (Nasdaq: CSIQ) - maintains a Buy and lowers target from $40 to $32. CY10 EPS estimate moves from $2.50 to $2.02, while CY11 moves from $2.70 to $2.15.
  
• Suntech (NYSE: STP) - maintains a Sell rating and $11 price target. CY10 EPS estimate lowered from $0.72 to $0.61 and CY11 estimate set at $0.70.
  
• Trina Solar (NYSE: TSL) - maintains Buy and cuts target from $37.50 to $31. CY10 estimate slashed from $2.35 to $1.75 and CY11 estimate cut from $2.50 to $2.05.
  
• Yingli Green Energy (NYSE: YGE) - maintains Buy and lowers target from $16 to $15. Firm's CY10 estimate lowered from $0.95 to $0.79 and CY11 estimate set at $1.02.

Most solar stocks are moving higher today; the Claymore/MAC Global Solar Index ETF (NYSE: TAN) is up 2.5% in mid-day trading.

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