Solar: Credit Suisse Turns Cautious; Sees Supply Glut Ahead

The solar stocks are coming under selling pressure this morning after Credit Suisse analyst Satya Kumar turned cautious on the sector, cutting his ratings on multiple stocks, on concerns about an expected dramatic increase in supply, which he thinks will lead to renewed pressure on pricing.

Kumar writes in a research note that he fears that more subdued demand growth in the solar market can’t keep up with incremental supply coming online starting in mid-2011. He says new capacity is coming online at a rate of 2 GW/month in the fourth quarter. In 2011, he sees “flattish demand,” while capacity is expected to increase 50% next year at the top 20 producers - and entrants are also on the way. “As a result, factory utilization should start falling,” he writes, “and pricing could decline faster than expected.”

Satya downgraded the following stocks:

• GT Solar (SOLR), Trina Solar (TSL), ReneSola (SOL) and First Solar (FSLR) to Neutral from Outperform.
• JA Solar (JASO) and Suntech (STP) to Underperform from Neutral.

His only remaining Outperform rated stock is MEMC Electronic Materials (WFR).

Kumar stresses that he’s not “secularly negative,” which is to say he still thinks falling solar prices will drive adoption of solar higher, which he says should open up opportunities to move back into the stocks at a later date. But he adds that from a cyclical view, he is “unable to reconcile the supply growth with our still optimistic demand expectations, and hence we think there has to be a period of stock weakness.”

In early trading:

• SOLR is down 25 cents, or 3%, to $8.14.
• TSL is down 69 cents, or 2.9%, to $23.
• SOL is down 27 cents, or 2.8%, to $9.55.
• FSLR is down $1.14, or 0.9%, to $129.55.
• JASO is down 26 cents, or 3.3%, to $7.59.
• STP, which reported earnings this morning that fell short of estimates, is down 36 cents, or 4.3%, to $7.98.