Inside Wall Street: Why GT Solar Could Outshine the Pack

The solar play on Wall Street has dimmed quite a bit after the group's initial glow several years ago. But some big investors are again warming up to selected stocks in the industry, in particular GT Solar (SOLR), a global provider of production equipment and process technology to the solar power industry. The stock closed on Mar. 26 at $5.35, down from a 52-week high of $9.04 on May 5, 2009.

The reason behind the renewed interest: GT Solar's stock remains depressed even though the company's business fundamentals continue to be strong. GT Solar posted results for its most recent quarter that beat the Street's forecasts, and it raised sales and earnings forecasts for fiscal 2010. Some bulls figure the stock is worth $9.50 a share.

One problem for GT Solar is that it gets lumped with the makers of solar panels, a group that's been hampered by competitive pricing due to rising production costs. In fact, GT Solar has an edge over the panel manufacturers because it supplies them with equipment and services that help lower their costs in a price-sensitive industry.

"GT Solar's technology and equipment are essential for the production of polysilicon and multi-crystalline ingots that are key materials in manufacturing solar cells and panels," notes Jacques R. Elmaleh, director of research and portfolio manager at Steinberg Global Asset Management, which has accumulated shares.

"Low Downside Risk"

Other large institutional investors include OakTree Capital Management, already the largest stakeholder, which purchased 7.16 million shares to raise its stake to 54.3% as of Mar. 19; Adage Capital Partners, which bought 1.15 million shares, boosting its ownership to 3.5% as of Dec. 31, 2009; and T. Rowe Price, which added 449,300 shares, to a 3.14% interest as of Dec. 31, 2009.

The growth of the solar industry's capacity and production is what's important to GT Solar, and those categories are undoubtedly growing significantly, says Steinberg's Elmaleh. GT Solar's valuation is attractive, he says, trading at just nine times consensus 2010 earnings forecast. The company has little debt and has cash of $1.39 a share on its balance sheet. "There is low downside risk to the stock," says Elmaleh, who sees it climbing to $6.50 a share in 12 to 18 months -- or higher over time.

Analyst Satya Kumar of Credit Suisse upgraded GT Solar on Mar. 25 to outperform from neutral on improved sales and earnings expectations. "Our checks suggest that GT Solar has increased its market share for multi-crystalline furnaces," says Kumar. In February, the company announced new orders worth $200 million for its DSS ingot furnaces. One recent order came from China's Jiangxi Sornid High-Tech Co. for ingot growth furnaces worth more than $20 million.

In a recent study of demand trends worldwide, Kumar upgraded his already positive outlook for the industry. Following several meetings with solar companies in Europe and Asia, the analyst updated and raised his global supply and demand estimates. "The big picture," says Kumar, "shows that demand [for such products as polysilicon and solar wafers] is stronger than expected in so many countries that price elasticity of demand appears to have been underappreciated." (Credit Suisse has done banking for GT Solar.)

Wall Street Is Wavering

"Recent orders clearly show the market for GT Solar's industry-leading DSS furnaces is picking up," says Jeff Osborne, alternative energy analyst at Thomas Weisel Partners. He notes that investors had feared that GT Solar's current order backlog of $857 million would diminish quickly because several key customers have been overcome by financial hardship. The $200 million order GT Solar announced on Feb. 20 "should quell investor fears" that the backlog has peaked, he adds.

Osborne recently raised his 2010 forecasts to 55 cents a share on sales of $556.2 million from an earlier estimate of 53 cents on $525.3 million, and boosted his 2011 numbers to 64 cents a share on sales of $633.2 million, also from an earlier 53 cents on $523.9 million. Osborne rates the stock as overweight, with a 12- to 18-month price target of $9.50 a share.

Wall Street is still wavering over GT Solar, with five of 11 analysts recommending buying the stock, while five others rate it a hold. One analyst recommends dumping the stock. Little wonder that the shares are still languishing. But the depressed price could be an opportunity for investors who are seeking a place in the sun.
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