Wednesday, August 20, 2008

Suntech Power (STP) Ignites Solar Sector

I continue to be somewhat boggled by the individual stock reaction to what I see as very similar reports in the solar sector, but we'll never know what sort of short positions need to be covered in one stock versus another or what exactly is going on behind the scenes. Either way, former fund holding Suntech Power (STP) aka "the granddaddy of Chinese solar" said enough to make people happy and is up 15% today - thankfully the whole group is following so our 9% exposure to the group is treating us well today as we have multiple companies running in the +8-10% range. While growth is solid at Suntech (STP) it has the premium valuation in the group among Chinese peers (as it almost always has) and there are a lot of other companies growing faster at cheaper multiples. *IF* the company had been more consistent over the past year in regards to earnings you could make a case it's worth paying up for "consistent growth", but Suntech has missed quarters just as often as it's peers - but it is an analyst favorite with a management that the Street cannot stop falling over, so that counts for something in the Wall Street game. Full report here.
  • Chinese solar cell maker Suntech Power Holdings Co Ltd (NYSE:STP - News) reported sharply higher quarterly earnings on Wednesday and lifted its 2008 revenue target on burgeoning global demand for solar energy.
  • Revenue jumped 51 percent to $480.2 million, well above the $443.53 million in revenue analysts had been expecting, thanks in part to a strong euro.
  • Second-quarter net income was $65.2 million, or 38 cents per American Depositary Share, compared with $41.3 million, or 25 cents per ADS, a year earlier. Excluding items, the company earned 41 cents a share. Wall Street analysts, on average, had been expecting earnings of 32 cents per ADS, according to Reuters Estimates.
  • Gross margin excluding items was 24.7 percent, up from 22.5 percent in the first quarter.
  • The company also said that demand from Italy, Germany and other markets would offset a sharp fall-off in demand from Spain next year as that nation pares back generous government subsidies for solar power. About 40 percent of Suntech's second-quarter sales came from Spain, and concerns about a pullback in demand from that market have weighed on the company's stock in recent months.
  • "We have far more demand in the pipeline than we intend to supply," Suntech Chairman and Chief Executive Zhengrong Shi said on a conference call with analysts. (if you say the correct words on conference call you get a premium; if you have the same business but don't use the correct wording I suppose you don't get the same respect)
  • In another positive sign for investors, Suntech forecast a 20 percent decline in polysilicon costs in 2009, but said contracted selling prices on its products for next year so far were better than expected.
  • Citing robust demand, Suntech raised its 2008 revenue forecast to a range of $2.05 billion to $2.15 billion from a range of $1.9 billion to $2.1 billion. The solar company also increased its target for shipment of photovoltaic cells by 20 megawatts to 550 MW.
  • Suntech has signed 200 megawatts (MW) of fixed price contracts for 2009 so far, and the biggest price decline from 2008 levels is about 5 percent, the company said. That's lower than the company's expectation that prices will fall between 8 percent and 10 percent next year, Chief Strategy Officer Steven Chan said in an interview.
  • The company's photovoltaic cell production capacity was 660 megawatts at the end of the quarter, and Suntech said it was on track to reach a gigawatt of capacity by the end of the year.
So now Suntech Power (STP) after being in the doghouse for a while can for the next 90 days be in the "penthouse" of solar stocks - and we'll move the chairs around in mid November once more depending on who does best for that quarter. Certain other companies we happen to own in the space had much faster growth, raised guidance farther, trade at far lower multiples, and have better operating metrics. Further analysts were antsy about certain solar stocks we own having only 60% of 2009 production sold out and caused hand wringing post earnings; Suntech has about 30% of 2009 production sold out (that's half by my college level math) but analysts will clap like seals and they get the 15% bounce - ah, stock markets.... it is simply funny how something is a concern for 1 company but totally brushed off for identical peer. :) Don't get me wrong - this was a good report and bodes well for the entire (undervalued sector) and I've owned Suntech on and off both in personal account and here for years - in fact this was the first solar stock I ever bought. I am just shaking my head at some of the discrepancies among companies and the way analysts find certain things to pick on certain companies but not others. When this is a very homogeneous set of concerns.

Long other solar stocks in fund and personal account

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