ITC Extended In Senate - We Like HOKU (Nasdaq:HOKU),LDK Solar (NYSE:LDK) & Premier Power (PPRW.OB)
Sep 24, 2008
Author: SCP Editor
September 24, 2008 –The Senate passed a much anticipated tax package yesterday, which, amongst other things, renews the Investment Tax Credits (ITC) for alternative energy. This is a huge win for the renewable and clean tech industry, and frankly, we are surprised it didn’t hit heavier headwinds in the Senate vote – only 2 voted against the broader tax package. Perhaps its passage was a benefactor of a Senate that is focusing itself on the crisis in the financial markets and the proposed $700 billion bailout plan. Regardless, the passage of the extended tax credits will buoy the sector, drive growth and bode well for solar, wind, geothermal, clean tech, and other renewable energy companies. Under the bill, wind will get a single year of tax credit extensions, solar gets eight, tidal gets two. Buyers of PHEVs will get anywhere from $2,500 to $7,500 back.
The eight-year extension of the investment credit for solar energy would more than triple investment during that period, to $325 billion, and almost triple employment in the industry, to 440,000 in 2016, according to the Solar Energy Industries AssociationPredictably, solar stocks reacted immediately to the news yesterday, and we expect that they will outperform on the news. Companies that we like in each of the solar segments, and that we think will benefit strongly from the ITC extension include:
Upstream (polysilicon manufacturers): HOKU Scientific (Nasdaq:HOKU) – impressive $2.3 billion backlog, strong revenue visibility through 2020, smartly getting significant up-front prepayments on contracts to pay for its plant being built will reduce need to dilute shareholders. Stock closed yesterday at $6.40, with a $130 million market cap and our 12-month target for the stock is in the $15-$17 range. See our previous commentary on the stock.
Midstream (wafer and module makers): LDK Solar (NYSE:LDK) – multi-billion backlog, leading wafer manufacturer becoming vertically integrated which will improve margins, expanding wafer capacity to 1,100MW in 2008 to 2,000MW in 2009, wafer backlog of 610MW in 2008, 1,200MW in 2009, 1,512MW in 20010 and 9,160MW from 2011-2018, strong revenue growth ($105 million in 2006, $523 million in 2007 and $1 billion+ expected in 2008) with equally impressive gross profit and net income growth (net income grew from $25.9 million to $139.1 million from 2006 to 2007). Stock closed yesterday at $34.92, trading at 13.49x P/E (ttm), earning $2.59 per share and at a $3.72 billion market cap. Our 12-month target for the stock is in the $63-$70 range. See our previous commentary on the stock.
Downstream (integrators): Premier Power (OTCBB:PPRW) – a best-in-class integrator focused on commercial markets in the U.S. and Europe, has growth revenue from $16.7 million in 2007 to more than $48 million contracted this year, unlike so many of its peers, Premier has managed to grow profitably, which we think should put it in a position to demand a premium to peers like Akeena Solar (Nasdaq:AKNS). The stock closed at $5.25 yesterday, holding an approximately $152 million market cap. We haven’t arrived at a price target on this one yet, but we think that with the extension of the ITC, and Premier’s already demonstrated ability for strong revenue expansion while maintaining profitability in challenging market conditions bode well for stock appreciation.
Important Disclosure: SCPEditor is LONG HOKU, LDK and PPRW, and is a principal of Aspire Clean Tech Communications, which is the corporate communications advisor to PPRW. It is paid $7,500 by PPRW on a monthly basis for a period of 12 months beginning in September and has been compensated by 30,000 shares for the 12-month period. The information and trades provided here and in the comments are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance.
