Suntech Should Rebound Strongly This Year

As oil and natural gas prices trend higher because of rising demand, solar becomes more attractive. Solar sales are expected to rise 25% in 2011.

The average cost per watt for solar has dropped 30-40% over the past few years, but cuts in feed-in laws in Europe kept investors away from the sector even as global sales soared.

Last year, Germany, where much of the cuts took place (and there could be more coming mid-year), accounted for about a third of Suntech Power (STP) revenues. That’s likely to decline to 20% this year, as the company diversifies to other countries.

Suntech had losses in 2010 because it wrote-off an unsuccessful entry into thin-film solar, causing a severe correction in its stock.

This year, the solar stock should rebound strongly. Suntech is now vertically integrated, making all the components of solar panels, which should translate into higher margins in this increasingly commoditized industry. They expect sales to be 45% higher this year.

Suntech shares trade at a sharp discount from its peers – with profits poised to rebound, that discount should evaporate, which would be a strong move for the stock.

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