The growth potential of the solar industry as a whole, and Evergreen Solar (ESLR) in particular, remains a compelling story. Capacity expansion and progress toward near-term break-even earnings make ESLR one of the fastest growing alternative energy stocks. Positive factors include significant new multi-year sales contracts, new operating facility at Massachusetts, capacity expansions over the next few years, improving operating efficiencies, technological upgrades, and new silicon supply contracts. The company expects to start first panel shipments by mid-2008.
However, continuing earnings losses, huge capital expenditures and earnings dilutive stock issuances may present risks to near-term share price upside potential. Accordingly, we maintain our BUY recommendation on ESLR with a six-month target price of $14.50. Price appreciation to our near-term valuation target represents 18.8% upside potential.
Looking ahead over the near-term, on the upside, we support management's long-term focus on capacity build-out and technological enhancements, rather than striving for optimal near-term results. In other words, Evergreen remains well positioned within the high growth alternative energy industry to eventually deliver solid financial results, in our view, given significant new multi-year poly-silicon sales contracts, increasing manufacturing throughput, improving operating efficiencies through the use of quad ribbon technology, in-progress capacity expansions, as well as potential additional benefits by way of normalized silicon pricing whereby prices may drop if/when additional capacity comes online.
We also expect the company to benefit as the company increases capacity approximately three-fold through its EverQ partnership and reduce expenses through new production methods and technologies. For example, the JV-partnerships with REC and Q-Cells at EverQ is expected to ensure that long-term expansion programs stay on course and continuous R&D will help make the company technologically superior to its peers.
Moreover, over the long-term, with strong long-term growth potential, we expect the recent trend of significant new contract announcements to help offset the history of negative earnings and operating cash flow to date. Additionally, the pending EverQ IPO should further boost Evergreen's net income.
Read the full analyst report on ESLR
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