Analyst Shahriar Pourreza said solar panels have become a commodity and that utilities see little difference among panels from different manufacturers.
"Manufacturers will never see gross margin levels attained prior to the sector bust," Pourreza said in a 184-page note to clients.
Solar companies will have to adapt by offering more services such as development or operations and maintenance. Successful companies will need to have lower production costs, niche technology or other advantages.
Pourreza gave "Buy" ratings to four of seven companies for which Citi began covering, led by SunPower Corp., which the analyst lavished with praise as "the total solar package" of efficient panels, a big distribution network, majority ownership by oil giant Total SA, and likely growth through acquisitions or joint ventures.
Citi also gave "Buy" ratings to First Solar Inc., MEMC Electronic Materials Inc., and Advanced Energy Industries Inc.; and "Neutral" ratings to Trina Solar Ltd. and Yingli Green Energy Holding Co. Ltd.
City assigned a "Sell" stamp to Suntech Power Holdings Co. Ltd. It said the company suffered from low margins, heavy short-term debt, too much exposure to the more-mature European market, and an open investigation into whether it was the victim of a multimillion-dollar fraud involving a partner in a solar development.
In afternoon trading, shares of SunPower rose 38 cents, or 4.7 percent, to $8.40; First Solar gained $2.11, or 7.3 percent, to $31.13; MEMC rose 21 cents, or 5 percent, to $4.43; Advanced Energy Industries picked up 55 cents, or 3.5 percent, to $16.45; Trina Solar rose 8 cents, or 1.5 percent, to $5.40; and Yingli gained 10 cents, or 3.2 percent, to $3.27. Suntech fell 4 cents, or 2.5 percent, to $1.54.