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Jack Yetiv's Comments Stream Stats
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Penn West Energy: Q3 Earnings Review
I believe PWE is a compelling value here--even if they do what PVX just did and drop dividend by 25% (and I think they should do that even if they could sustain this dividend). Even after a 25% cut in the dividend, it would still yield 20% on today's closing price.
Jack Yetiv
More Downside Ahead for Solar - Barclay's
Given what the Euro has done versus the dollar in the past few months, investors should not expect any forex gains in Q3 (and probably even less so in Q4) and that could MATERIALLY impact earnings for CSIQ, STP and others.
In contrast, the strengthening dollar should actually HELP TSL's earnings in Q3 and Q4 because it uses the dollar as its functional currency. At the very least, the dollar's recent strength should limit (and probably eliminate) the forex losses that hurt TSL's Q1 and Q2. Indeed, TSL might even report a bit of a forex gain. Since these forex gains and losses can amount to 20-30 cents per share, their impact on stock price can be quite significant.
As to fundamentals of the solar industry, here are my brief thoughts (I will expand on these in an article at the end of November):
1) World demand will continue to be robust, largely because of the $17 billion renewable subsidy passed as part of the $700 billion bailout.
2) Polysilicon prices will drop 15-20% in 2009 compared to 2008 (and this has already begun in earnest in the spot market, although note that much poly is contracted for at agreed prices, so spot prices won't impact all poly bought).
3) ASP's will be 10-12% lower in 2009 versus 2008 (this has also begun).
4) Overall margins in 2009 will be maintained, but earnings growth will slow down for most companies from +50 to 100% to "only" 30 to 60% as production ramps slow and income taxes increase.
Jack Yetiv
Whither Oil Prices?
My guess is that OPEC will NOT want oil lower than $100, which means that oil might overshoot to maybe $90, but not much lower.
OPEC can achieve whatever price it wants by cutting the proper amount of production from global supply.
Jack Yetiv
Megaprojects Predict Decline of Oil Production
I refer largely (but not exclusively) to OPEC. I think OPEC could serve to smooth the curve even more--until they run out of spare capacity. For example, when Khursaniyah becomes fully operational in the next few months, its production will likely be witheld from the market if oil is at $100 or less. Indeed, when OPEC meets next week, we may well learn of production cuts.
The bottom line is that I strongly believe that politically-induced manipulations of oil production may exert great influence of the above analysis.
In the final analysis though, it seems likely me that oil is unlikely to go south of $100 by a whole lot, and it seems further likely that oil will begin an uptrend over the next few years. I think to guess that oil will be $200 or $500 is to do something we really don't have sufficient data for, but it seems likely oil prices will continue to climb over t5he next few years.
As it was in an article I posted here about 8 months ago, my prediction is for oil to be at $100 to $120 this year and maybe next, with $150 (plus or minus $20) as the new baseline sometime next year or the year after.
Jack Yetiv
Oil Price Helps Trusts Sustain Current Rate of Distribution
One speculation--PWE made the non-core asset deal a month or two months ago, when commodity prices were much higher. They may be able to replace those non-core assets with others at a lower price, and in places that "fit" their E & P activities better.
Until we know the terms, it's impossible to know if this sale was stupid, brilliant or somewhere in between.
Jack
Will Global Events Keep Oil Above $100?
I do agree that oil may approach if not test $100, and nat gas may hit low $7. If they do, I am going to load up the boat (I'm already pretty loaded, though, primarily with PWE and PVX).
Jack
Incorrect Media Speculation About Those Oil Speculators
Frankly, since nobody has actually defined "speculation"... it's impossible to determine whether oil prices are largely due to it. Bu thye fact of the matter is that all stocks and commodities are driven by "specualtion"... in the braod sense of the world--when I buy a stock, aren't I doing it because I am speculating that it will go up in the future?
How is that different than buying oil because I think it will be higher in the future?
And if I buy an investment property, am I not doing it because I think I will be able to get more for it when I sell it?
Jack
Atlas Energy: More 'Criminally Undervalued' Than Cramer Realizes
How does $8 gas impact the rates of return, and the attractiveness to the investors who put up the moeny to drill the wells?
Can the "guranteed return" to the investors completely eliminate any return to ATN if the gas price goes low enough?
Jack
Trina Solar: Will 2009 Be a Breakout Year?
1) Solars are not going to grow 50-100% PER YEAR--I think 2008 for many solars will be 100%+ better than 2007, but CAGR's will slow to 30-40% in 2009 to 2010.
2) Yes, the future CAN really be that good. Look at MSFT's growth 20 years ago, Dell's 10 years ago, AAPL's in the past 5 years. Solar is more compelling than all of those because the product it makes--electricity--is far more essential than Ipods, and current means of producing it--coal, nat gas, even nuclear--are all fraught with problems, not the least of which is markedly increasing costs.
Solar offers NONE of those problems--and will DECREASE in cost going forward--probably by at least 10-15% next year and an equal amount in 2010.
In Calif, as you can tell from the Southern Calif Edison and PG & E announcements, we are essentially at grid parity. The growing recognition of that fact will boost demand tremendously.
3) They all need capital--either in the form of selling shares, or borrowing money. But in 2009, these companies are going to be making tens of millions of dollars in profit per quarter--and some will hit quarterly earnings of $100 million before the end of next year. That will generate lots of cash for growth.
Also, keep in mind that as their stock prices appreciate, they can get much more cash for selling 5 million shares than when their stock prices are lower.
I'll explain in a future post why I believe the market ran yesterday and today after STP earnings. It had little to do with STP's earnings.
Jack
Trina Solar: Will 2009 Be a Breakout Year?
I don't usually get my facts wrong. I didn't this time, either. Quote from the CC, which is kindly posted on Seeking Alpha:
In respect to long-term financing for our strategic expansion, on July 24th we successfully concluded our convertible bond offering, which can provide for our remaining 2008 funding requirements, in addition to anticipate positive operational cash flows in the second half.
Always good to check the facts very carefully before you criticize someone else.
Jack
Trina Solar: Will 2009 Be a Breakout Year?
1) Revenues Q1--$120 million, Q2--$204 million, Q3--$265 million (upper end of guidance, which they will meet or exceed).
2) EPS--ex 1X items--for these three quarters was about 60 cents in Q1 (going from memory), $1.00 this quarter, and I'm guessing about $1.25 next quarter.
3) They announced on the call that they do NOT need any further cash for the rest of 2008, so that takes care of one issue for TSL. By the way, the same applies to CSIQ and SOL, so so much for the guy who was writing on SA a few months ago telling us all these Chinese solars had one foot in bankruptcy court.
4) I don't care what your complaints are about management (and I thought they did a nice conference call this quarter) a company that is growing sales and operational profits at a rate of 25-50% SEQUENTIALLY does NOT deserve a forward PE of SIX (against 2009 earnings that will undoubtedly exceed $5/sh on an operational basis, and may well exceed $5 even taking 1X events into account).
5) As to management's competence, I disagree with the author and above commenters. We all knew that canceling the fab was going to hit Q2 earnings, and frankly, just a $2 million (8-cent) hit is not bad at all. I would have expected twice that.
Second, we all "knew" that forex was going to be a $3 million (12-cent) hit. Therefore, assuming $4 million hit for closing the poly fab and $3 million on forex, you could have reasonably modeled $7 million in one-time hits, versus the actually-announced $8 million (32 cents in total 1X hits).
6) Because we know that closing the fab is over, that hit isn't coming back. As to forex, I still don't understand it well enough to know whether TSL mgt had a choice in going to the US dollar as a functional currency, so I can't either criticize or exonerate management on this issue. But we do know the dollar has shown a lot of strength so far this quarter (I'm not sure if the strength was just against the Euro or also a little against the RMB, although one commenter above suggests the strength is only against the Euro).
In addition, TSL mgt indicated that they are working on diversifying their capital structure to minimize short-term RMB-denominated debt, which will therefore REDUCE the volatility caused by the forex issue. The appreciation of the dollar and the efforts to reduce RMB-denominated debt suggest to me that going forward, the forex losses should be less, and if we have a quarter where the forex losses zero out or become gains, TSL could report a 100% surprise quarter.
7) The forex issue--because it is so large relative to operational earnings--does make it extremely difficult to project earnings for TSL, but even if you take this quarter's $1.00 and subtract the 24 cents of forex, and even if you assume that TSL does not grow EITHER revenues nor earnings for the next 3 quarters, that would give you $3.04 in earnings (76 cents X 4).
Of course, if you make a more realistic (but still very conservative) earnings progression of 86, 96 cents, $1.06 and $1.16, you get $4.04 in earnings in the next 12 months.
Of course, if revenues increase $60 million next quarter, and forex stays the same as this quarter ($6.1 million), I expect that TSL will make close to $1.00--not 86 cents--in Q3. But even taking the progression starting with 86 cents, $4.04 in the next 12 months means that TSL, a company that will undoubtedly double earnings in 2008 versus 2007, and probably go up another 30-40% in 2009, is trading at a forward PE today of LESS THAN 7.5.
Gimme a break. That's absurd, regardless of what you think of management.
And I, for one, think they did fine this quarter (of course, the market is telling me I'm the only one in the world that feels this way, but hey, I'm right and the market is wrong! LOL).
Jack
CANROYs Remain Attractive as Oil-Related Investments
Based on my hazy memory (double-check me on this), I believe ERF had a higher payout ratio this quarter that either PWE/PVX, while offering a bit less dividend. ERF's RLI (Reserve Life Index) and/or tax pools may be somewhat less, as well.
Of course, I think all of these Canroy's will do well if oil stays over $100 and nat gas doesn't go lower than it is right now. They all will suffer if the contrary comes to pass.
jack
CANROYs Remain Attractive as Oil-Related Investments
If you criticize my basket of recommended stocks in the past year (CSIQ, PWE, TSL, PVX and SOL, plus HTE for a while but NOT now), which overall, are probably up 15% after Friday's run in SOL and TSL, then you have to tell me what is better.
If your "better" is to be in cash, that's fine, but "cash" has made people what, 3% in the past year?
Jack
Game Changer in Solar Energy: PG&E Inks Deal
But keep in mind this has been a very fickle, anti-solar, anti-oil market, and even though I thought FSLR and CSIQ announced very well, their stocks really haven't gone anywhere, unlike at any time in the past. Part of this is due to the perceived connection between dropping oil prices and a lower attraction to solar, and part of this is due to negative press on the solar companies and ITC expiration concerns.
TSL is by far the PE leader, trading at what I believe to be a 2008 PE of under 9 (I am projecting income at about $3.50 for 2008), while SOL is at about 11-12 PE, but SOL is much more loved by analysts and the investment community.
TSL announces tomorrow and SOL on Tues. In the past, I would have said that if they blow out their numbers, they will go up 30-40%, but having observed FSLR and CSIQ, I'm not as sure this time around. But the solar stocks have shown some strength recently, so maybe we will get a nice run if these companies report very well. LDK absolutely demolished estimates, and last quarter, probably would have run close to 100%, but only ran about 30% this time.
But since I am not a daytrader, I can wait for the market to recognize the value in these names.
Jack
Game Changer in Solar Energy: PG&E Inks Deal
My guess (and it is only that) is that Optisolar's efficiency is today in the ballpark of FSLR, which is about 11%. SPWR has laboratory 23.6% efficiency, and I expect their production panels in 2010 will probably be around 25%.
As to McCain and Obama, to my knowledge, neither has come out and stated a position on the ITC, but both have included "renewable energy" as something we ought to do. But even forgetting the two candidates, there is a growing groundswell of support for renewables in this country, and Boone has helped put renewables/wind on the map. Just like poll results will push Obama not to oppose drilling the OCS/ANWR, I believe the same will happen with renewables.
Watch for this topic to become front and center during the debates.
Also, it's entirely possible that this issue will come up when Congress returns from its recess in a couple of weeks. Remember, the states are way ahead of the federal govt on this issue (30 states now have RPS's, Renewable Portfolio Standards), which will also generate pressure on Congress to do something. Finally, as the economy slows, and unemployment increases, extending the ITC will be sold as a "jobs creation" plan--which of course, it will be.
One way or another--and for so many reasons--this country HAS to support renewables. And, I believe that although we'll be late to the party (compared to Europe), once we get to the party, we'll be the heaviest drinkers.
Jack