Zacks_Analysts' Blog : Evergeen Solar Sunnier in England - Analyst Blog

Massachusetts-based Evergreen Solar Inc.’s (ESLR) fortunes look sunnier in England after a panel variant of the company, ES-A series qualified for the Microgeneration Certification Scheme (MCS) of the United Kingdom's Department of Energy.

The certification is mandatory for solar panels to be used for the Renewables Cash-Back Scheme and therefore, vital for Evergreen Solar. The Renewables Cash-Back Scheme has been active in the UK since April 2010.

Per the scheme, homeowners and communities along the coast who install solar panels are even paid for the electricity they generate and consume themselves. Given the fact that the UK has more than 19,000 miles of coastline, the certification is an early Christmas gift for Evergreen Solar.

Evergreen Solar’s spotlight on U.K. comes at an opportune moment with The UK Renewable Energy Strategy (RES), aiming to generate 15% of overall energy consumption from renewable sources by 2020. The company’s focus on increasing its revenue base outside its two major markets (U.S. and Germany) will augur well over the longer run. In the third quarter of 2010, the company generated more than three-fourths of its revenues from the above two markets.

Evergreen Solar’s geographically diversified contractual backlog, ongoing expansion programs of its manufacturing process in China, improving operating efficiencies and technology upgrades will help maintain its positive momentum.

We expect Evergreen Solar to narrow its losses in fiscal 2010 with a loss per share of 38 cents compared to a loss of 53 cents in fiscal 2009. However, continuing near-term losses due to start-up costs, capital expenditures, apprehension over a subsidy roll-back in Germany and earnings dilutive stock issuances may stunt the near-term share price upside potential.

Competition in the industry is becoming tougher by the day for U.S. solar energy players such as Evergreen Solar, who have a huge German bias in their top line compared to its counterparts such as, Suntech Power Holdings Company Ltd. (STP), SunPower Corporation (SPWRA) and ReneSola Ltd. (SOL) whose markets are more diversified.

We maintain our long-term Neutral recommendation on the Zacks #3 Rank (Hold) stock.