Citing valuation, Auriga downgraded JA Solar (Nasdaq:JASO) from "Buy" to "Hold."
There has been a mixed response from a number of analysts over the solar industry, as there is a growing demand for the product, but the margins have been under pressure, and valuations coming in at pretty high levels.
"With shares of JASO trading meaningfully above our price target, we find it judicious to downgrade our rating to Hold. Long-term investors may still find further upside to the shares as we assign a below-average P/E of just 8x, given JASO's lack of vertical integration within the solar supply chain, while short-term investors should find the current price level attractive to recognize profits. We recognize that industry fundamentals remain strong, and that JASO will likely print Q3 results ahead of consensus estimates, however; our price target uses our 2011 EPS estimate, which we are unable to meaningfully raise at this time," said Auriga.
Earnings season will help establish whether or not this is really a sustainable bull run in the solar sector. If margins are able to hold as revenue climbs, it'll be a good sign for the industry and investors.
Some believe the valuations of many of the solar companies are high, and there isn't a lot of room to move up, as in the case of JA Solar.
JA closed Friday at $8.68, dropping $0.65, or 6.97 percent. Auriga has a price target of $8 on the firm.
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