Deustsche Bank analyst Vishal Shah reported in a research note this morning that checks find that "a worse than expected proposal to cut subsidies could get introduced" at Germany's cabinet minister's meeting tomorrow. He says there's a possibility of a 15% April cut along with a 2% monthly reduction thereafter, as well as a subsidy cap. He notes that solar stocks are up better than 50% on average year to date, and that "a potentially negative Germany policy outcome could likely act as a near-term overhang for these stocks."
Shah says he considers MEMC Electronic Materials as the "most defensive" choice in the solar group, and First Solar having the most downside risk. He says that Tier 1 China-based solar plays - Trina Solar, Yingli Green Energy and Suntech Power - also are vulnerable to near-term German policy shifts.
Citigroup analyst Timothy Arcuri raised the same issue this morning. He also thinks Germany could cut subsidies 20%-35% in April, worse than what he says is the Street consensus of a 10%-20% cut. He says that would immediately reduce project IRRs from the high single digits to the very low single digits. The analyst cautions that the higher cuts "creates downside risk for all solars."
Solar stocks are getting hit hard this morning:
- MEMC Electronic Materials is down 33 cents, or 6.2%, to $4.96.
- SunPower is down 39 cents, or 5%, to $7.44.
- First Solar is down $3.15, or 7.6%, to $38.57.
- Suntech is down 32 cents, or 8.5%, or $3.43.
- JA Solar is down 18 cents, or 8.8%, to $1.87.
- LDK is down 48 cents, or 7.6%, to $5.84.
- Yingli is down 35 cents, or 6.6%, to $4.94.
- Trina is down 75 cents, or 7.3%, to $9.53.
Update: Note that Auriga USA analyst Hari Chandra Polavarapu today downgraded Yingli and Trina to Hold from Sell; he cut JinkoSolar to Sell from Hold.
