Yingli Green Energy (YGE) shares are trading lower this morning after Macquarie USA analyst Kelly Dougherty downgraded the stock to Neutral from Outperform.
“We have grown increasingly concerned that the imminent commencement of internal poly production will weaken YGE�s cost advantage,” Dougherty writes, adding that the firm prefers Trina (TSL), Canadian Solar (CSIQ) and JA Solar (JASO) for exposure to the China solar sector.
Dougherty writes that there is “a great deal” of risk associated with the company’s internal ramp of polysilicon manufacturing. “We think YGE is likely to erode its cost advantage once it starts making its own poly, just in time for stepped up price competition in 2011,” the analyst writes in a research note. “We have factored for these higher costs in our estimates although they are offset by our expectations for more resilient pricing. However, we still believe the execution risk associated with the poly plant is likely to be an overhang on the stock for at least the next few quarters.”
Dougherty writes the company has considered expanding poly production, a move that could spur the company to make dilutive stock offerings.
YGE is down 32 cents, or 2.5%, or $12.44.
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