alarm:clock

Tech stocks - Thursday, November 5, 2009

Finish Line Still Not In Sight For Evergreen Solar

While trying to offer a positive outlook for the “business marathon” the company is running, executives at Evergreen Solar (ESLR:NASDAQ) still reported disappointing losses, dwindling cash reserves, and some uncertainty about the future of their business model with today’s Q3 earnings release.

Revenues and improved manufacturing output were the highlights of the earnings release as revenues climbed to $77.7 million in Q3, beating analyst expectations of $73.86 and handily beat the $63.8 million in Q2 2009 and the $22.1 million posted in the same quarter in the previous year.

Evergreen Solar shipped 31.3 MW of products during Q3, a significant increase over the 23.2 MW shipped during Q2 2009. The 35 percent increase curiously comes at a time as the company recently broke ground on a plant in Wuhan, China that will be leased from Jiawei Solarchina. Evergreen Solar will supply Jiawei with String Ribbon wafers that will be used to build Evergreen-branded solar panels. With China’s solar market growing quickly and with Evergreen Solar only generating 25 percent of its sales in the U.S., investing in production facilities close to a custiomer with the largest potential is a smart move despite Evergreen Solar’s production facility in Devens, MA is not finished and needs another $13 million to reach its targeted 40 MW output. Evergreen Solar also commented today that production, labor, and capital costs were cheaper in China.

The net loss at Evergreen Solar was $82.4 million or $0.40 per share. While far worse than the $0.08 per share than analysts had predicted, the company did take a $70 million charge on their Sovello joint venture due to the collapse of Lehman Brothers. Without the charge, Evergreen Solar would have beaten analyst expectations with a loss of $0.06 per share.

Like most companies in the solar industry, cash is a concern at Evergreen Solar even though the company says it has enough. The company currently has $90.9 million on hand, $10 million less than the same quarter in the previous year. During today’s earnings call the company noted that it needed to spend $42 million on its plant in Wuhan, $13 million on its plant in Devens, $2 million on its filament plant in Michigan, $5 million on operating expenses and a hefty $7 million to service the company’s debt. By the end of Q4, the company expects to have $115 million in cash to put towards these expenses. Evergreen Solar also mentioned during the call that the board approved a motion for the company to issue more shares.

While cash will remain a concern for some investors, the company’s ability to competitively price its products could loom larger in the future. Evergreen Solar maintains that its products are of superior quality in terms of efficiency and construction and that its customers are willing to pay a premium for them. But with more companies entering the solar race, running the “marathon” that Evergreen Solar executives mentioned during the call may require the company to change its pace if it is to remain ahead of its competitors.

And if Evergreen Solar is truly running a marathon, they would be well-served to “lighten their load” by reducing a good portion of their debt. And making some tough decisions about their plant in Devens would serve them well. While the Obama Administration has been great about delivering dollars under the American Recovery Act for renewable energy, there has yet to be a mandate saying this money needs to be spent on U.S. companies. Without a “buy American” mandate, Evergreen Solar will be forced to sell its higher quality products to overseas projects with larger budgets instead of cost-conscious domestic undertakings.

Regardless, Evergreen Solar should see a small lift in stock by stating business will be steady during the next two quarters which are typically slow. While the promise of today’s improved revenue levels remaining should give the stock a lift, investors will be still left deliberating risk versus reward when debating the company’s long term prospects. Will Evergreen Solar finish their marathon? Not everyone who enters a marathon finishes the race but the next few miles do seem critical to Evergreen Solar’s future.