Monday, December 6, 2010

UPDATED: Repost: Auriga Upgrades Suntech to 'BUY', Raises Price Target (STP)

UPDATE (DEC. 7) below.
Original post:
On Friday the stock was up 4.81%, closing at $8.28.
We haven't had many posts on Suntech in the last twelve months, the stock had seemed to have lost it's way as an investment and it didn't bounce around enough to be a trading favorite. Here's the 12-month chart from BigCharts:

Auriga's Mark Bachman is one of the better analysts in the clean/green/alt energy space.
Here he is via Barron's Hot Research:
"Suntech Should Shine Again"
Suntech Power Holdings (NYSE: STP)
By Auriga USA, LLC ($7.34, Dec. 2, 2010)
WE ARE UPGRADING Suntech Power Holdings to Buy from Hold and raising our price-target to $11 from $9.

Ahead of Suntech's (ticker: STP) Dec. 6 Analyst Day and after the Glory Silicon acquisition announcement, we are adjusting our model only for the expected margin increase from in-house wafering – and find potential to reach about 22% gross margin in 2011 versus fourth-quarter guidance of 17% and the 2011 consensus of about 18%.

Gross margin of about 20% is also the norm around which Suntech operated in years past. We model 25% internal wafering capabilities in 2011 to discount recent missteps in execution.

Further upside from increased sales, increased wafer capacity, and the final transition to Pluto, is possible, but we're leaving that discussion for after the analyst day.

Ahead of what we expect to be a bullish Analyst Day and signs of recovery from a low in margins, we expect heavily shorted Suntech will see a round of short covering. We expect margin and earnings-per-share estimate increases after the Analyst Day, both of which normally lead to higher stock prices and work against a short position.

Time is not a new short seller's friend here with borrow rates for Suntech currently greater than 15% versus the Chinese solar group in the 1% range.

With third-quarter 2011 tangible book at $6.68 per share and fourth-quarter 2010 tangible book expected to be above $7 per share, further downside appears limited.

With our in-line sales and new gross-margin estimates, we forecast tangible book will rise quarter-over-quarter next year to end fourth-quarter 2011 at $9.07 per share. With positive company-specific catalysts forthcoming, we recommend longer term-oriented investors build positions at these levels.
While we do not expect negative sentiment to turn on a dime and lead the stock racing higher, we do expect the stock to creep higher from here as fears subside and companies guide first-quarter 2011 better-than-represented by today's stock prices.

Wafering improvement is hard to ignore. Management thinks it can achieve 25 celsius per watt (c/w) or more cost improvement in wafer costs from the Glory Silicon [of England] acquisition.

The implied wafer-processing cost puts it in-line with other leading wafer manufacturers. We do not give full credit for implied processing cost and still see 20% gross margin likely for first-quarter 2011.
We take this opportunity to also tweak 2011 sales and average selling price (ASP) expectations more in-line with the rest of our covered stocks.

We now model an 11% decline in shipments and 9% decline in ASP from fourth-quarter 2010 to first-quarter 2011, and set ASP declines through 2011 to reach fourth-quarter 2011 ASP of $1.50 per watt.
Note this is lower than management guidance for flattish units and pricing in first-quarter 2011.
We're increasing our 2011 earnings-per-share estimate to $1.42 from 94 cents, and shifting our multiple to eight times (from 10 times) to better align with current solar industry multiples.
--Mark W. Bachman
--Robert Spandau
Also at Hot Research:
"Suntech: Goldman Ups To Neutral Post Analyst Day--Plus-- Auriga Raises Price Target Again (STP)"

*See also:
Nov. 16, 2010
Solar: Auriga’s Mark Bachman Weighs in on Trina, Suntech, Canadian Solar and Yingli (TSL; STP; CSIQ; YGE):

·         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. 
Oct. 15, 2010