Has This Solar Company Rightfully Eclipsed Its Peers?

Solar stocks have been a hot commodity over the past year. Residential and commercial markets have become increasingly receptive to incorporating solar solutions, and many solar stocks have outperformed the market. But, there is one stock that has stood out among its peers – one that deserves closer inspection to see if the company's performance substantiates the stock's impressive rise.

If asked to name manufacturers of solar panels, most investors will identify any one of the several Chinese companies, or they will think closer to home: First Solar and SunPower. Odds are, they won't think of South Korea, and they won't think of Hanwha SolarOne (NASDAQ: HSOL  ) , a South Korean investment holding company (headquartered in China), which is involved in the manufacturing of solar panels, producing everything from the ingots to the completed modules.

Nothing but blue skies 
The stock has outperformed its peers over the past six months. Of the top 10 solar panel manufacturers according to 2012 shipments of modules in megawatts, Hanwha is in tenth place; however, compared to the top three on the list (and many others), Hanwha's stock has gained the most.

HSOL Chart

HSOL data by YCharts

What's the bright idea?                                                                 
It's impossible to pinpoint one reason why Hanwha's stock has performed so well, but it's still worthwhile to take a look at the company's recent developments. Last week, Hanwha announced that it would be offering a Zep Compatible Module in early 2014. Partnering with Zep Solar, one of the leading providers of installation systems for residential solar panels, Hanwha is essentially playing catch-up; most major PV module manufacturers already offer Zep compatible products.

Nonetheless, using these Hanwha HSL Series modules will translate to a reduction in installation costs and an improvement in the time needed for the installation -- about four to five times. Was this meant to just make residential customers happy, though? Not quite.

Perhaps more so, it was an attempt to make SolarCity (NASDAQ: SCTY  ) happy. Earlier in the month, SolarCity announced that it had reached an agreement to acquire Zep Solar, whose "technology has helped SolarCity's installation crews to double the number of residential systems they can install each day since they began using the product earlier this year." The ability to complete projects so swiftly is essential to SolarCity's success. In the company's most recent 10Q, it cited the inability to promptly finish projects as one of the risks related to the business: "Because our profit on a particular installation is based in part on assumptions as to the cost of such project, cost overruns, delays or other execution issues may cause us to not achieve our expected margins or cover our costs for that project."

One aspect of SolarCity's business model that helps to control costs is the purchasing of PV modules from various suppliers. In doing so, it can secure the most competitive prices for the PV modules and mitigate the risks associated with a PV manufacturer going out of business. Hanwha has only gained SolarCity as a customer during the past year, and it certainly doesn't want to jeopardize the new relationship. 

Playing among the stars     
One of the larger companies Hanwha SolarOne claimed as a new customer in the past year is Constellation Energy Resources, an Exelon Corporation (NYSE: EXC  ) company, which provides customers with clean energy solutions. The two companies worked together, earlier in the year, to complete the Outback solar project, a 5.7MW solar array located in Oregon. One of the largest solar power facilities in the Pacific Northwest, Outback features 20,000 Hanwha solar panels. Constellation Energy, the owner of the facility, will sell the power to Portland General Electric under a 25-year PPA.

Hanwha is certainly hopeful that Outback is the dawn of a beautiful friendship. Exelon has demonstrated a renewed commitment to solar in the past year. In 2012, Exelon added 31MW of solar power. In 2013, though, Exelon acquired the Antelope Valley Solar Ranch, a facility, which when completed, will contribute over 230MW to Exelon's portfolio.

Unfortunately for Hanwha, Exelon does not provide a lot of specifics with the financials of their solar projects. Plus, it's unclear how committed Exelon will be to solar in the future. 

Shining a light on the numbers     
It seems as if Hanwha has had some impressive strategic developments over the past year, but how is the company performing financially? Hanwha SolarOne reports Q3 earnings on November 12, and I'll be looking to see if they can continue to improve on some impressive numbers from the previous quarter. For Q2 2013, Hanwha reported a 6.3% increase in revenue, an 11% increase in shipments, a gross margins improvement of 290 basis points, and an operating margins improvement of 120 basis points.

The Foolish takeaway...   
Many investors have sat in the shade, eager to gain exposure in the solar sector but afraid of getting burned. Hanwha SolarOne may very well be a dark horse among a number of PV manufacturers that always seem to be in the spotlight. Reporting impressive numbers during its earnings call may very well validate the opinion that Hanwha SolarOne deserves further investigation.

How should you play energy?
Record oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg. For this reason, the Motley Fool is offering a comprehensive look at three energy companies set to soar during this transformation in the energy industry. To find out which three companies are spreading their wings, check out the special free report, "3 Stocks for the American Energy Bonanza." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free. 


Read/Post Comments (1) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 05, 2013, at 12:12 PM, kcsag wrote:

    Long and strong in HSOL (5K shares @ 2.2 average) with smaller positions in JASO and FSLR. JASO might be the most under-valued Chinese solar pick right now; it is trading at less than $2 pre-reverse split price and offers a significant upside (provided that they continue to do good business in Japan). FSLR is an established player and a safety IRA pick (also by Mr. Hoium at MF). It announced very impressive results for last quarter on 10/31. GLTA!

Add your comment.

DocumentId: 2712482, ~/Articles/ArticleHandler.aspx, 8/1/2014 5:37:02 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement