Warren Buffett’s MidAmerican Energy Holdings utility agreed to buy First Solar (FSLR)’s Topaz project in South Carolina for $2 billion, causing a 7% leap in the solar company’s shares.
First Solar has agreed to build and operate the plant in San Luis Obispo County for MidAmerican. Construction began in November and is set to finish by early 2015. (via Bloomberg)
When completed it will be one of the world’s largest photovoltaic power plants and have about half the capacity of a new nuclear reactor. The installation’s 550-megawatt capacity will be sufficient to power 160,000 homes in California.
The purchase of First Solar’s plant will be MidAmerican Energy Holdings’ first expansion into the field of solar energy. The financial details of the transaction were not publicly disclosed.
Branching into Solar
Bloomberg reports that Buffett’s utility company “struck today’s deal after First Solar failed to get a U.S. government loan guarantee for the project that will use its thin-film panels. The purchase may make it easier for the solar company to sell additional projects.”
Buffett’s company Berkshire Hathaway already earned $888 million from earnings in utilities and energy business in the nine months ended Sept. 30. But Buffett’s decision to branch out into the struggling solar sector may have been more a result of tax incentives than increased earnings.
According to Gerard Reid, an analyst at Jefferies International Ltd, “The reason for the move from wind to solar is very simple,” he said in an interview with Bloomberg. “Tax credits for wind in the US expire at the end of next year, while solar ones run till 2015.”
Investing Ideas
“Let’s be clear, this is not Warren Buffett taking a bet on solar technology,” said Michael Horwitz, solar analyst at Robert W Baird. “This is Warren Buffett investing in a power plant that is guaranteed to yield large cash flows for at least 20 to 25 years,” he added. “The power plant just happens to be solar powered.”
Be that as it may, could Buffett’s investment cause others to reevaluate the clean energy market?
To help you explore the market, we list below the clean energy companies that have seen net positive investment from institutional buyers in the current quarter – a sign that these “smart money” investors think there is more upside than downside to these names.
Do you think these names will rise in value? List sorted by institutional buying as a percentage of share float.
1. Ashland Inc. (ASH, Earnings, Analysts, Financials): Operates as a specialty chemicals company in the United States and internationally. Market cap of $4.50B. Net institutional shares purchased over the current quarter at 3.1M, which is 4.30% of the company’s 72.14M share float.
2. Cree, Inc. (CREE, Earnings, Analysts, Financials): Develops and manufactures light emitting diode (LED) products, silicon carbide (SiC) and gallium nitride (GaN) material products, and power and radio frequency (RF) products. Market cap of $2.96B. Net institutional shares purchased over the current quarter at 1.6M, which is 1.42% of the company’s 112.54M share float.
3. Federal Signal Corp. (FSS, Earnings, Analysts, Financials): Designs and manufactures a suite of products and integrated solutions for municipal, governmental, industrial, and commercial customers worldwide. Market cap of $256.26M. Net institutional shares purchased over the current quarter at 639.0K, which is 1.06% of the company’s 60.09M share float.
4. Fuel-Tech, Inc. (FTEK, Earnings, Analysts, Financials): Uses a suite of advanced technologies to provide boiler optimization, efficiency improvement, and air pollution reduction and control solutions to utility and industrial customers worldwide. Market cap of $149.28M. Net institutional shares purchased over the current quarter at 267.7K, which is 1.50% of the company’s 17.79M share float.
5. W.R. Grace & Co. (GRA, Earnings, Analysts, Financials): Engages in the production and sale of specialty chemicals and specialty materials worldwide. Market cap of $3.16B. Net institutional shares purchased over the current quarter at 1.4M, which is 2.24% of the company’s 62.47M share float.
6. Heritage-Crystal Clean, Inc (HCCI, Earnings, Analysts, Financials): Provides industrial and hazardous waste services to small and mid-sized customers in the United States. Market cap of $242.66M. Net institutional shares purchased over the current quarter at 283.7K, which is 2.54% of the company’s 11.15M share float.
7. Newpark Resources Inc. (NR, Earnings, Analysts, Financials): Provides fluids management, waste disposal, and well site preparation products and services primarily to the oil and gas exploration and production industry. Market cap of $853.98M. Net institutional shares purchased over the current quarter at 2.4M, which is 2.67% of the company’s 89.77M share float.
8. Companhia de Saneamento Basico do Estado de Sao Paulo (SBS, Earnings, Analysts, Financials): Provides water and sewage services to residential, commercial, industrial, and governmental customers in the State of Sao Paulo. Market cap of $6.18B. Net institutional shares purchased over the current quarter at 612.1K, which is 1.08% of the company’s 56.66M share float.
9. Watts Water Technologies, Inc. (WTS, Earnings, Analysts, Financials): Designs, manufactures, and sells water safety and flow control products for the water quality, water conservation, water safety, and water flow control markets in North America, Europe, and China. Market cap of $1.36B. Net institutional shares purchased over the current quarter at 452.7K, which is 1.57% of the company’s 28.77M share float.
(Written by Rebecca Lipman. Author owns shares of FSLR. Institutional data sourced from Fidelity.)
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Dig Deeper: Access Company Snapshots, Charts, Filings
- Ashland Inc. (ASH, Chart, Download SEC Filings)
- Cree, Inc. (CREE, Chart, Download SEC Filings)
- Federal Signal Corp. (FSS, Chart, Download SEC Filings)
- Fuel-Tech, Inc. (FTEK, Chart, Download SEC Filings)
- W.R. Grace & Co. (GRA, Chart, Download SEC Filings)
- Heritage-Crystal Clean, Inc (HCCI, Chart, Download SEC Filings)
- Newpark Resources Inc. (NR, Chart, Download SEC Filings)
- Companhia de Saneamento Basico do Estado de Sao Paulo (SBS, Chart, Download SEC Filings)
- Watts Water Technologies, Inc. (WTS, Chart, Download SEC Filings)
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FSLR and CREE are on my longer term research list, but both sell into an environment where cost per unit sold is on the decline. Until a shakeout and bankruptcy are completed with competitors, there is minimal upside.