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LDK Confirms the Difficult Q2 Story The Market Has Already Priced In

As we draw towards the end of the Q2 earnings season for solar, LDK has become the latest company to confirm both the difficult quarter and the fact that the worst is now clearly priced in.

The story is familiar – better than expected revenues but a painful net loss due to a crushing margin squeeze. Revenues in fact fell 35% quarter on quarter. At $ 499.4m, however, this was a bit better than expectations of some $478.8m and towards the high end of the company’s August 18th revised guidance. The company nevertheless delivered a worse than expected 62 cent loss per share against expectations of 33 cents. As with other solar firms, the culprit was of course the gross margin which fell to just 2.2% compared with 32% in the previous quarter and 18% a year earlier.

Looking forward the company pointed to signs of a stabilization in both prices and orders. For the current quarter they provided revenue guidance of $630m to $680m, better than expectations of $585m. And for the year as a whole they reaffirmed revenue guidance at $2.5bn to $2.7bn, ahead of consensus expectations of $2.45bn.

You can read LDK’s full press statement here.

I have argued previously that the worst of the bad news now appears to have been priced in and that a solar recovery trade is a good prospect – see here and here. That now increasingly appears to be the case and is of course supported both share repurchase programs and insider buying in the sector:

  • On August 8th the Board of JA Solar (JASO) approved a $100m share repurchase program. More detail here.
  • On August 22nd, Renesola’s (SOL) Board approved a similar $100m share repurchase program. More detail here.
  • Last week First Solar announced that five of its senior executives had purchased shares for a total of just over $500,000 – see here.
The price action in both LDK (up 5.82%) and the solar sector as a whole was good today and clearly suggests that the recovery trade is gaining confidence.

Disclosure: I have no positions in any of the stocks discussed.