Tuesday, November 16, 2010

Solar: Auriga’s Mark Bachman Weighs in on Trina, Suntech, Canadian Solar and Yingli (TSL; STP; CSIQ; YGE)

From Small Cap Pulse:
Analyst Comments – Auriga’s Mark Bachman weighed in the solar sector this morning, commenting on upcoming reports by Daqo (NYSE:DQ), Suntech (NYSE:STP), Canadian Solar (Nasdaq:CSIQ) and Yingli (NYSE:YGE) with Trina Solar (NYSE:TSL) coming up after Thanksgiving. 
Key Takeaways:
·         Investor focus is now firmly on FY11 and Q411 module price required to clear increased production from expansive capacity plans – consensus warming to worst-case $1.40/w module cost assuming the euro trading at $1.35;  
·         Daqo - estimates DQ will report 3Q Sales/GM%/EPS of $59mln/39.6%/57c and guide 4Q to 72mln/39.9%/53c. Expects commentary supportive of FY11 $323mln/35%/$2.00. Its potential shift downstream from poly towards modules is cause for margin decline in 2012, but this is simply the company transitioning to a different business model and highlights the increased earnings dollars as a result. Buy rating and $20 target is 10x 2011 EPS estimate.  
·         Suntech – Expects the company to handily beat his 2H10 below-Consensus estimates but feel the bigger story is 2011 where below-Consensus estimates better approximate STP's risks in an environment heading toward $1.40/w for modules. With Pluto and associated cost benefits still delayed, sees margins under pressure throughout 2011 as cost programs lag price declines. The Dec 6 analyst day should offer more visibility into cost reduction goals and expansion plans, and thus the 3Q report should be fairly benign. Hold rating and $9 target is 10x 2011 EPS estimate of 90c. 
·         Canadian Solar - Better-than-expected margins in 2H10 are the well-known story here, but sustainability is in question. Margins are notoriously volatile around module prices, and as fast as margins go up when prices increase, margins go down just as fast when prices decrease. With module prices expected to fall to $1.40/w by 4Q11, need to see a better cost reduction program to become more constructive. That said, the company is aggressively ramping its internal cell capacity, which will help to reduce volatility starting in 4Q; CSIQ may only have to purchase up to 50MW of external cells in all of 2011. Increasing wafer capacity, to achieve a more balanced manufacturing profile, will likely become the next focus; would not be surprised to see capex increased to support up to 300MW of wafer capacity on the 3Q earnings call. Hold rating and $13 target is 10x 2011 EPS estimate of $1.35....MORE
See also:
Bachman Initiates Daqo (NYSE:DQ) - Says Shares Are Meaningfully Undervalued