It Will Take a Year To Burn Off Excess Solar Inventory, Says Analyst

Investors remain too optimisitic about the solar industry in the opinion of J.P. Morgan analyst Christopher Blansett, who released a research note this morning on First Solar, where he slapped a $92 price target on the stock. Eric Savitz at Barron’s has a recap of the report:

“We believe the Street is underestimating the scope of the problems that the solar energy industry and First Solar are facing this year with significantly higher commercial lending rates and lower overall global subsidization driving down demand,” he writes. “We are now thinking of the solar energy sector in terms of a growth cyclical perspective and believe it will take 2-3 quarters to burn off excess inventory.”

Blansett asserts that Street expectations for solar energy stocks remain too high. While many investors expect U.S. government loan programs to have a big impact on solar system demand this year, Blansett writes that he is “more pessimistic on the speed of the federal government and think that solar project financing form this program is more likely to be a 2010 event.” Meanwhile, he adds, the industry is “massively over-supplied,” with a risk of spot module prices falling below $2/watt. Blansett asserts that FSLR will have to cut prices to remain sold out this year, “an obvious negative impact on profitability.”

First Solar rode the Chinese subsidy wave last week and was as high as $156 last Thursday. Since then it’s slid downward, on news that the Chinese subsidy might not help the industry too much, and a report this weekend that First Solar’s margins will be squeezed this year. The stock is around $132 today, down 3% for the day.

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