Tuesday October 7th, 2008 / 16h17
By Steve Gelsi
NEW YORK (Dow Jones) — Goldman Sachs on Tuesday slapped sell ratings on the two largest publicly traded U.S. solar power firms, with the broker flagging the possibility of oversupply as overseas subsidies dry up in the face of the global economic meltdown.
Goldman analyst Michael Molnar forecast “strong headwinds for valuation” as he downgraded shares of First Solar (FSLR) to conviction sell from buy and SunPower (SPWRA) to sell from buy.
Shares of First Solar fell 13.5% to $138.10. SunPower retreated 12% to $58.36.
“The risk of oversupply in the solar market will soon become a reality as considerably less generous demand subsidies take hold just as a wave of supply and tight financing hit the market,” Molnar said in a note to clients. “We believe that liberal subsidies of the past in markets like Germany and Spain are unlikely to be replicated in the future given fears of their ultimate cost in a bad world economy.”
As supply continues to come on line in a less favorable subsidy environment, prices will have to come down, putting pressure on profit margins.
Goldman set a new price target of $103 a share for First Solar, well below its close of $159.71 a share on Monday.
“(We) see multiples contracting as valuation implies more growth than will come even for one of the best solar companies in the world,” Molnar said.
SunPower’s new price target is $43 a share, compared to its closing price of $66.34 on Monday.
“Their installation business may perform well, but we see a consistent drag from the module business given lower industry pricing,” he said.