- LDK Solar Co Ltd (LDK), a manufacturer of solar wafers, said Thursday it expects to report its inventory audit findings in early December and post third-quarter earnings shortly thereafter.
- The company said it expects fourth-quarter fiscal 2007 revenue of $165 million to $170 million and earnings per share of 37 to 41 cents. It sees wafer shipments for the quarter between 82 and 88 megawatts.
Interesting guidance. Analysts are in at $143M and $.37 EPS. This revenue guidance is much higher than analysts expected but the EPS is not much higher. Therefore it signals that gross margins are going to take a hit (potentially). Reason being, somehow LDK Solar (LDK) was claiming low 30% gross margins which was far above industry average. So if they drop to say mid 20%s, then it takes more revenue to generate the same amount of profit.
With that said, this company has huge revenue growth, and Wall Street prefers BAD news to uncertainty (this is why you see the financials lift after they get yet another kitchen sink out of the way - but since we don't know how many more sinks there are, the financials are still scary). Once LDK Solar has this out of the way, even if gross margins fall to mid 20s, at least we have this 'contained' and we can move forward.
Earnings estimates for 2008 are currently $1.87 - this should be hittable even with a lower gross margin and at a measly $32 this is under a forward PE of 20 for a company growing in excess of 100% for the near future. Hence it will be a bargain buy in my opinion once this audit is out of the way. In fact one who has a high risk tolerance might start buying ahead of the news. As I have stated, this one has the potential to pop 40% overnight once the air is clear. I might take another look at this name soon, as I exited near $40 and the stock was as low as $29 range yesterday.
No position
2 comments:
The discrepancy between greatly raised guidance in revenue and only incrementally raised for EPS can be attributed to the one time costs associated with two audits and hiring two law firms rather decreasing margins. They are guiding higher despite these costs. This would indicate secure margins and great fundamentals.
Michael good point
Although I'd say audits are not 'that' expensive esp. on a 150-160M base of revenue. The lawyers on the other hand... (I dont expect litigation to be a 1x quarter issue either) so its an ongoing expense for them for a while. But lets see how it plays out. For those with a speculative bent LDK is a very interesting play anywhere below 45.
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