At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." Today, we'll show you whether those bigwigs actually know what they're talking about. To help, we've enlisted Motley Fool CAPS to track the long-term performance of Wall Street's best and worst.
Shining a light
Two of the biggest names in stock picking are out today with a slew of ratings for the biggest names in solar power. First up: Jefferies and First Solar
Ranked in the top 10% on CAPS, Jefferies had little good to say about First Solar today. Sticking with its "hold" rating on the stock, the analyst knocked $12 off its price target (which is now $133) and warned that First Solar's Q2 earnings report may include an earnings warning for the rest of the year. Regardless, investors are accentuating the positive aspects of Jefferies' advice, focusing on the fact that the stock currently sits well below the new price target -- and bidding the shares up more than 4% in response.
Accentuate the positive, eliminate the negative
The other big news in solar today comes courtesy of Brean Murray, and comes in the "good news / bad news" format. Bad news first: JA Solar
In contrast, fortune shines on Yingli Green Energy
Bad news, good news, and more bad news
If there's a downside for Yingli shareholders today, it's in the identity of the analyst upgrading the shares. As it turns out, Brean really isn't that great of an analyst when it comes to solar stocks -- or stocks, period. According to our CAPS stats, this analyst's picks fail to outperform the S&P 500 about 51% of the time. Brean does even worse in semiconductors and electrical equipment makers -- the two industries into which solar stocks tend to be grouped. Over the past five years, Brean has managed to outperform the market on a grand total of two of its solar picks.
Brean's Picks Beating S&P by
But it's gotten every other stock in the industry wrong. First Solar -- wrong (losing 12 percentage points to the market). Trina Solar
Solar stocks: Buy the numbers
It gets a Fool to wondering. If Jefferies isn't all that hot for solar, and Brean is, but is usually wrong when it's bullish, then are there any real values to be had in this industry? Well, let's find out. Let's take a quick stroll through solar land today, and see what we come up with.
At first glance, First Solar looks attractive. The stock sells for just over 17 times earnings, but Wall Street has it pegged for 20% long-term earnings growth. That's good right? Well, it would be. Except that First Solar's profits are entirely illusory. Examine its cash flow statement and you'll find that even as the company claimed $608 million in "profits" earned over the past 12 months, it actually burned through $22 million in negative free cash flow.
Yingli Green Energy
What about Yingli, recipient of today's sole solar upgrade? Here we've got another apparent steal of a deal on offer. Yingli sells for less than six times earnings, but like First Solar is pegged for more than 19% long-term earnings growth. Unfortunately, it's an even worse cash-burner than First Solar. Yingli hasn't generated a penny's worth of positive free cash flow in more than five years.
Sell-rated JA Solar looks even more tempting than Yingli at a 3 P/E ratio and 15% "growth." Problem is, with cash-burn exceeding $50 million last year, I'm not quite sure what JA Solar analysts think JA will be "growing."
Which of these things is not like the others?
Fact is, of the four firms that Wall Street discussed today, the only one I hold out real hope for is ReneSola. Here we've got a solar wafer maker selling for just two times what it earned last year, yet sporting a free cash flow statement that shows it's not just generating cash -- but actually generating more cash than its income statement suggests. Over the past 12 months, ReneSola has churned out $210 million in free cash flow, versus reported income of just $200 million -- suggesting the stock could be even cheaper than it looks.
Granted, even ReneSola isn't perfect. Years of cash-burn preceding its 2010 turnaround have left the company laden with debt. But if last year's performance proves to be something other than a fluke -- if ReneSola can continue generating cash, and using it to pay down its debt -- this stock just might be a survivor. In an industry as fraught with hype and peril as solar is, ReneSola could shine.
Motley Fool newsletter services have recommended buying shares of First Solar, but Fool contributor Rich Smith does not own shares of (or short) any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 511 out of more than 170,000 members. The Motley Fool has a disclosure policy.
Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.