Solar stocks were abandoned by some of their most firm believers this week. That sudden flight is an institutional imperative that you might not consider as an individual shareholder.
Consider the average Wall Street sell-side analyst. With a slow-motion market crash unfolding, his price targets are starting to look silly. He can't appear to be detached from reality. Now that the shares have tanked, justifications must be made for lower target prices. Not fabricated, necessarily -- there are indeed reasons to be very cautious here -- but the solar story is now being spun in a much more skeptical light.
On Tuesday, Goldman Sachs (NYSE: GS ) cut the leading U.S. lights -- First Solar (Nasdaq: FSLR ) and SunPower (Nasdaq: SPWRA ) -- and cut them hard. First Solar was downgraded from a "buy" to a "conviction sell" (which is like a super-sell), and Goldman's price target now stands at $103. It was formerly $365. This is simply one of the most extreme -- and embarrassing -- forecast adjustments I've ever seen.
I haven't run the valuation on this one in a while. The last time I did, I cited reasons to sweat. But now that First Solar is coming crashing back to earth, it's worth keeping an eye on this company, which in Goldman's own words is "one of the best solar companies in the world."
Goldman wasn't the only one to step in with downgrades this week. Lazard came in Friday with a slate of price target revisions of its own. Interestingly, the firm maintained its "buy" rating on all nine stocks, including Evergreen Solar (Nasdaq: ESLR ) , Suntech Power (NYSE: STP ) , and Energy Conversion Devices (Nasdaq: ENER ) . Like Goldman, Lazard cited supply/demand issues as the reason for trimming its targets.
If there was any glimmer of hope this week, it emanated from China. LDK Solar (NYSE: LDK ) came out with a surprise update on Wednesday, projecting both higher revenue and shipments for the quarter. In addition, the company met its year-end capacity target a full quarter ahead of schedule. Despite the distinct prospect of failures among smaller solar companies in the year ahead, I think LDK is here to stay.