Most solar power industry watchers believe 2010 will be a significant year of recovery for solar power. The American economy is once again starting to grow and aggressive government tax credits are in place for the long haul. The Obama administration is pushing Recovery Act dollars into the space in order to stimulate the economy, create jobs and advance its green agenda. The price of solar equipment continues to fall and, most importantly, the financing for solar projects that was virtually non-existent for most of 2009 is once again flowing into this sector in 2010.
One of the major factors driving growth in the solar market is the steep drop in price of solar panels, which are down as much as 40% compared to last year. While part of this is certainly do to the oversupply of panels as a result of the recent recession, technological advancements are also playing a significant role. These price drops, combined with government incentives, are making solar installation justification easier than ever for potential buyers.
An additional accelerating factor for solar installations will be the likely inclusion of solar energy into a possible upcoming jobs bill that will be pushed through Congress over the coming months. Many Capitol Hill watchers believe this jobs bill may include some of the incentives that were originally included, but later removed, from the climate and energy bill passed by the House of Representatives last year. These new incentives could be tied to either or both of any renewable energy standard which would require utilities across the country to use renewable energy and/or a national standard for connecting solar installations to the electrical grid. These factors are expected to cause a more then doubling of the American solar market during 2010. This level of growth is expected to continue for the foreseeable future. According to some estimates, the United States could account for 25% of the world’s solar market by 2013, up from only about 8% of total world capacity today.
With the significant growth that is expected over the coming years, there are clearly investment opportunities for small-cap investors. Selection of the best opportunities, however, should be done very carefully. Upon initial analysis, many small-cap investors might assume that solar technology manufacturers would be an obvious investment play. We do not necessarily agree. Important to this discussion is the fact that where as 10 years ago, American companies supplied nearly 50% of the world’s solar panels, today America’s share has dropped to less than 10%. Additionally, the steep price drops noted above are an additional major factor that makes betting on manufacturers risky, in our view.
Thus, instead of betting on the manufacturing side of the solar industry, we believe a much safer bet is to place investment dollars on those companies that will be installing the technology. Our favorite play in this area is Clear Skies Solar, Inc. (“Clear Skies Solar,” “CSS” or the “Company”), which trades on the over-the-counter market under the symbol CSKH. The Company is a “one- stop,” full service renewable energy systems supplier that designs, integrates and installs photovoltaic solar power systems, including turnkey solar energy installations and renewable energy technology solutions that converts solar power into electricity. The Company’s customer base is located mainly in the Northeastern section of the United States.
While 2009 was somewhat of a disaster for the Company, due to a financial and banking crisis that caused a virtual standstill in solar energy project financing, the Company’s pipeline of business for 2010 appears to be strengthening significantly. As a conservative outlook for full year 2010, we believe Clear Skies Solar will be able to generate a minimum revenue level of $15 million to $20 million dollars. We believe profit margin potential is easily above 10%, and possibly as high as 15% to 18%.
Over the past few weeks, the Company has made some very aggressive statements about the return of financing to the solar industry and about the strong pipeline of business that currently lies in front of Clear Skies Solar. We believe CSS’s backlog of business is especially strong and we are expecting ongoing news flow relative to this subject over the coming weeks. In particular, we would point specifically to the last two press releases issued by the Company as we believe management’s assessment of the growth opportunities are right on target. In an additional press release, the Company announced the signing of a rooftop solar project in New Jersey that is being funded by G&S Investors Group, a large developer of income producing properties in the Northeastern United States. National tenants include many large retailers and we believe G&S has substantial interest in marketing inexpensive solar power to this tenant base. We believe this initial announcement with G&S is just the “tip of the iceberg” in terms of deals in the pipeline for Clear Skies Solar.
With the extension of the federal income tax credit through 2016, the introduction of many state and local government incentives, record low solar module prices and a general renewed interest in solar energy, the market environment for solar power implementation has never been brighter. Most importantly, however, is the fact that many of the large solar projects that have been on hold due to the inability to find financing are now getting under way as financing is freed up. We believe these trends will drive substantial profits for Clear Skies in 2010.
Let’s take a look at what this Company has been telling us over the past few weeks. On January 19th, the CEO issued a shareholders letter in which he offered the following quotes: (1) “The credit markets are clearly starting to open up and we now have several large projects which are in the final stages of approval.” (2) “We are very positive about the prospects for our future.” (3) “We currently have more than $100 million of active proposals.” (4) “We are expecting to realize considerable revenue growth during 2010.” (5) “We urge all of our shareholders to closely monitor our upcoming announcements.” (6) “We believe 2010 will be an exciting year…. ” …And today, (1) “This project is the first of several signed CSS contracts on both the East and West coast to obtain funding.” (2) “We are clearly excited about the resurgence of financing within the solar energy space and look forward to the strong growth we expect to realize through the rest of the year.”
We cannot recall the time when we last saw a CEO make comments as positive as these. With the federal government firmly backing solar installations, the upcoming federal jobs bill likely containing specific language about job creation within the solar industry, strong state and local solar energy related incentives in place, a resurgence in financing for solar projects, what we believe to be a major pipeline of business directly with G&S Investors, combined with a strong pipeline of other solar projects, we believe there is compelling evidence to point to very strong revenue growth for this Company over the coming months.
As CEO Ezra Green has stated and we reiterate here, “We urge all shareholders to closely monitor upcoming announcements. We believe 2010 will be an exciting year for Clear Skies Solar, Inc.”
Clear Skies remains our top pick out all of the small-cap names we currently cover. We believe these shares are undervalued by at least two-thirds. This is just not another penny stock – we see some very strong trends driving this business.
http://www.joenoelstocks.com/category/stocks-covered/clear-skies-solar-cskh/
Joe Noel
Emerging Growth Research, LLP
(925) 922-2560
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