GT Solar International Inc. (NASDAQ: SOLR)

GT Solar International Inc. manufactures specialized production equipment and provides services to manufacturers of photovoltaic wafers, cells and modules and polysilicon. The Company’s principal products include Directional Solidification Systems (DSS) units and Chemical Vapor Deposition (CVD) reactors, and then sold to several of the world’s largest solar and chemical companies. The Company also sells complete turnkey solutions, including the bundling of third-party products and solutions.

Founded in 1994, the Company is headquartered in Merrimack, NH, and operates offices in Missoula, Montana; Shanghai, China; Beijing, China; and Hsinchu, Taiwan.

Source: Reuters.com, SEC Filings.

Financial Summary

Source: Reuters.com, SEC Filings.

Analyst Consensus

The mean of 18 analysts polled by Thomson Reuters rate shares of SOLR a “Hold.”

Analyst Recommendations and Revisions

Source: Reuters.com, SEC Filings.

Investment Highlights

The solar photovoltaic (PV) cell market has grown rapidly during the past decade, creating significant supply/demand imbalances worldwide this decade in a nearly $20 billion market as of 2008.

Initially, the most likely leading consumer of PV technology will come from commercial and public entities, as the economic advantages of PV is of paramount concern of stockholders invested in energy intensive businesses, as well as state and municipal governments.

Market growth is dependent upon PV per watt unit costs and the price of competing energy sources. PV technology is very attractive as an alternative to traditionally produced electricity as higher oil price levels are achieved, which has driven a flood of new investment into PV during most of this decade. With increasing government-sanctioned programs, tax cuts, grants, better overall returns on investment capital are expected to facilitate rapid consumer acceptance and adoption of PV technology.

Fossil Fuels Prices Influence the PV Market

Spot prices of oil and natural gas exploded to $147 per barrel and $13.5 per mcf (million cubic feet) of natural gas in late June of 2008, respectively, then dropped to $35 per barrel and $3.50 per mcf, respectively, in December. Since December, oil recovered to $70+ per barrel, while natural gas approaches $5 to $6 per mcf by the end of 2009. Correlation analysis reveals as the price of spot oil and natural gas rise, investment volume into solar stocks rise. Publicly traded solar companies rallied strongly in 2008 during the strong move up in the price of oil, and conversely dropped along with the spot price of fossil fuels.

Since capital formation of the PV market is correlated strongly to fossil fuels prices, factors affecting oil and natural gas price are important considerations in an investment into any alternative fuels enterprise. Therefore, factors affecting the prices of fossil fuels plays the largest role in the success of alternative energy sources, including PV technologies.

Energy analysts cite the post-June 2008 plunge and subsequent oversold condition in oil and gas prices to panic liquidation of contracts by hedge fund managers during the credit and liquidity crisis, which began in earnest in September of 2008. However, as the global economy stabilizes, the spot price of coal, oil, and its popular substitute, natural gas, are expected to firm, said the Energy Information Administration (EIA).

Oil Price Expected to Rise Again by 2010 and Beyond

Global production remains a key driver of fossil fuels prices and alternative energy investment, with production in both OECD and ASEAN countries weighing heavily on total world production outputs. Most economists expect a rebound in durable goods production in Asia, especially China. China’s real GDP growth is expected to reach 8% by the end of 2009, officially, while GDP growth in the OECD countries is anticipated to be flat or rise slightly in 2009 and 2010.

Growing employment and GDP have recently been reported in Australia, China and Singapore, providing evidence that an Asian economic rebound is at hand.

Since the demand for energy correlates strongly with overall economic activity, oil and natural gas prices may continue higher as excess inventories are depleted and diminishing new supplies struggle to satisfy this demand sometime in 2010, according to the Energy Information Administration (EIA). Increased investment in PV technologies is expected to follow GDP growth, which affect fossil fuels prices and demand for alternatives.

Since the majority of transactions for oil are conducted in the U.S. dollar, the anticipated continuation of the dollar’s decline will attract hedge funds and institutions into purchasing oil and natural gas as a currency hedge to further declines in the Greenback. As the dollar reached record lows on the USD Index, oil and natural gas prices were reaching record highs.

A re-test of the lows of the U.S. dollar increases demand from institutional and hedge fund managers for oil and natural gas, as these markets are the deepest and most liquid in the commodities space. The PV sector will be among several beneficiaries of the bear market in U.S. dollar.

Consumer and investor demand for alternative energy sources will rise significantly as a result of the dis-functioning dynamics expected in the oil and natural gas market early next year. PV will play a significant role in the public and private shift toward alternative fuel solutions during ever decreasing inventories of oil.

Recent Company News

On November 11, the Company reported a decline in overall revenue of 26% to $104.2 million for the latest reported quarter ended September 26, 2009, compared with $140.2 million for the equivalent period last year.

Revenue derived from photovoltaic equipment dropped 55% to total $60.7 million for the latest quarter of fiscal 2010, compared with $135.0 million for the same period of fiscal 2009. DSS unit sales plunged to $34.8 million for the quarter from $129.1 million for the same quarter last year. Revenue derived from photovoltaic equipment fluctuates depending upon customer order requirements, the Company said. Sales of photovoltaic services and parts declined for the latest quarter to $1.7 million, compared with $5.2 million for the equivalent period ended September 27, 2008. The Company cites delayed orders due to uncertainty regarding the financial credit and solvency crisis.

‘Turnkey revenue reached $25.5 million, which included $5.8 million of DSS units and $19.7 million of photovoltaic equipment, compared with no revenue for the same quarter last year. Polysilicon revenue derived from CVD reactors sales totaled $41.8 million, compared with no revenue reported for the same quarter last year.

The Company reported that a substantial percentage of revenue was derived from three customers, of which two customers accounted for 55% or total revenue, while three customers accounted for 77% of total revenue. No other customer accounted for more than 10% of total revenue.

Technical Analysis

SOLR trades above its 13-day moving average. This bullish sign is significant because the 13-day moving average is upwardly sloped.

The MACD for SOLR currently indicates a bullish signal. The MACD is above the signal line, a 9-day moving average of the MACD. The MACD is above the critical level of 0, which implies the past price action had been positive. Overall, the chart is bullish.

Comparative Analysis

Source: Thomson Financial

Insider Trading Activity

Source: Yahoo Finance

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