Clouded outlook
Evergreen Solar Inc. of Marlborough won $44 million in state incentives to build its manufacturing plant at the former Fort Devens and is already going full-steam ahead on a privately funded expansion that will double the capacity of that facility.
Sales are growing, production is expanding, and everyone agrees there is a lot of potential in Evergreen's uniquely efficient manufacturing process. Meanwhile in Washington, the House Ways and Means Committee is expected to act today to approve a measure that would extend by six years federal tax credits for solar products.
That sure sounds like a rosy investment scenario. But some people who follow Evergreen stock don't think shares of the state's most important solar company are any kind of bargain.
Citigroup analyst Timothy Arcuri started covering Evergreen last week in a report that noted the large amount of short interest in the stock, the activity of investors who believe the price of the shares will go down. "Sometimes the crowd is right," Arcuri wrote. He recommended investors sell Evergreen shares.
Most public companies working some corner of the solar power market have struggled in the stock market this year, but the 45 percent decline in Evergreen's shares puts them near the bottom of the barrel. Evergreen's stock gain of 4.9 percent over the last 12 months is far behind the pace of industry leaders.
Evergreen uses something called string ribbon technology to make ribbons of silicon that are cut into wafers, the main components of photovoltaic cells that go into solar panels. The proprietary technology is recognized as a way to produce wafers using about half as much silicon as conventional processes.
Evergreen, which has been making products at a small Marlborough facility, expects to have the first phase of its Devens plant up and fully running this year. The second phase should be running at full capacity late next year. The company's expansion plans extend out to 2012, when much more production capacity is expected.
Expenses at Devens will keep Evergreen in the red this year, but company executives say they will turn an annual profit for the first time in 2009.
Meanwhile, demand for solar products is expected to remain strong. "We believe the solar industry will remain robust and will continue to experience rapid growth over the next several years," Evergreen chief executive Richard Feldt told investors last month. No one disagrees.
So what's not to like about the Evergreen story? Critics point to the expense of ramping up all that manufacturing capacity.
Evergreen raised $144 million by selling 16 million shares in February to help finance its current expansion plans. But the price of the stock had been cut in half over the previous two months, making the sale much more expensive to the company. Now Evergreen expects to raise as much as $300 million more in new debt by midyear.
Still more money will be needed. Arcuri at Citigroup expects capital expenditures of about $2.2 billion between now and 2012 for Evergreen to build as much capacity as planned. He thinks Evergreen will need about $1 billion, roughly the company's entire stock market value today, in additional outside financing.
Meanwhile, rapidly increasing supply is expected to reduce the price of solar products. Arcuri thinks photovoltaic cell production will quadruple worldwide by 2010, driving prices "meaningfully" lower in 2009 and down more the following year. Evergreen says it expects prices to decline "a couple percent" in 2009 and to fall in the "mid to high single digits" in 2010.
Evergreen shares still have their fans. Analyst Paul Clegg of Jefferies & Co. upgraded the company's stock to "buy" this week. He said the company had managed expansion plans well to date and thought the stock price was reasonable. But Clegg set a price target of $10 for Evergreen shares that closed yesterday at $9.32.
The solar industry has promise, but also its share of challenges. Sooner or later, it will have to figure out how to make real money without heavily subsidized customers. Companies like Evergreen will also have to prove they can raise the money it takes to stay in the game and still appeal to their investors.
The Red Herring
Mark to market: Securities and Exchange Commission lawyers pursuing Fidelity Investments traders who allegedly took millions of dollars of tickets, trips, and other gratuities from brokers seeking their business had to come up with a formula to price all that swag. Their valuation model, described in documents this week, made it clear just how far professional hockey has fallen in Boston. Playoff tickets for Red Sox, Patriots, and Celtics games given to Fidelity traders were valued at $500 each. Boston Bruins playoff seats were worth just $200.
Steven Syre is a Globe columnist. He can be reached at syre@globe.com.
