It’s Evergreen Solar’s (ESLR) time to shine

Evergreen Solar (ESLR) has long been the underdog of the solar sector. Just take a look at their competition:

So what do Sunpower (SPWR) and First Solar (FSLR) have that Evergreen doesn’t?

First of all, they have a whole hell of a lot more revenue and earnings. In the last 12 months, SPWR had revenue of $906M, FSLR had $633M while ESLR only brought in $78.71M.  As you can see, there are millions of reasons why ESLR is the underdog of the bunch.

But you have to ask yourself - which one would you rather put your hard earned dollar into? A company that’s First Solar’s size (and hefty price tag) or an up-and-comer like Evergreen Solar?

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A Lehman Brothers analyst raised his target price on the stock and predicted his Wall Street colleagues will soon raise their earnings forecasts for the company. That move added fuel to a rally that extended a week of gains.

The contracts with White River Junction, Vt.-based groSolar and Germany's Wagner & Co Solartechnik GmbH that were announced late Wednesday run through 2012 and have a combined value of about $600 million.

Lehman analyst Vishal Shah said more than 65 percent of Evergreen's anticipated production in 2012 is now locked in with long-term contracts, adding visibility to the company's earnings for years to come.

Shah increased his target price by a dollar, or 9 percent, to $12 per share, due to the increased visibility.

The move came ahead of a meeting Evergreen planned to hold with analysts at its facility in Devens, Mass. Shah, who rates the stock "Equal weight," said he expected other analysts to raise their earnings estimates following the event.

"With manufacturing ramp on-schedule, we expect focus to be on cost, technology differentiation and (spending) requirements. We also expect presentations to focus on Evergreen's competitive advantage in terms of access to silicon supply, low cost structure and ability to enter into (long-term) take-or-pay contracts," Shah wrote in a note to investors previewing the meeting.

Evergreen shares jumped $1.81, or 17.7 percent, to $12.05 in early afternoon trading.
Shares have since fallen, thanks to Evergreen’s plans to offer $325 million in Senior Convertible notes. But this would have a dilutive impact on the company's existing shareholders by increasing the number of Evergreen shares outstanding, explained Signal Hill Group analyst Michael Carboy.

To get around this point, Evergreen entered into a capped call transaction with an affiliate of Lehman Brothers, the lead underwriter, that will raise the effective conversion price to the company to $19.00 per share. Lehman will provide the extra stock Evergreen would have to issue should its shares trade above $12.11 and below $19.00.

This way, if the shares do appreciate, as the company and shareholders hope, the conversion will have less of a dilutive impact.

Carboy said this was a smart strategy for Evergreen because it allows the company to raise equity at a relatively cheap price, providing the capital it needs to grow while minimizing the dilutive impact to shareholders. The downside for investors is that for the plan to work, the share price must appreciate, meaning the company must perform well both operationally and in share price value, Carboy added.

Friday's announcement widened the scope of an initial pricing of $300.0 million of notes announced Wednesday.

Cowen analyst Robert W. Stone said that Evergreen's transaction is significant for the company because the raised capital make it much more certain that its second phase of expansion at the Devens factory will come to fruition. Stone, who rates Evergreen as "outperform," said the expansion "should drive strong growth in Evergreen's revenues and earnings in the next couple of years."

Another reason to include a Solar Stock like Evergreen in your portfolio is the upcoming Presidential Elections. Regardless of which party gets into the White House, alternative energy sectors are bound to benefit from all the political subsidies and focus.

So go out and buy that sweet new solar-powered scientific calculator watch you’ve been hankering for, chicks will dig it and you’ll support the green movement and Evergreen Solar.

Disclaimer: The author has no shares of the securities mentioned in this article

Article written by Eric Cheshier

Co-Founder of theStockMasters.com

If you liked this article, Eric Cheshier also contributes to the Master Picks Newsletter and the Quant Method , only available at WallstNewsletters.com.