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More Bad Solar Earnings, More Evidence It’s All Priced In

In the past twenty-four hours, the earnings numbers from Suntech Power (STP) and Trina Solar (TSL) have provided another look at Solar’s terrible Q2 performance. However, once again solar stocks are bouncing off their lows – clear evidence that all of the bad news is priced in.

In terms of the numbers themselves, Suntech Power produced net revenues of some $830.7m in Q2, a decline of 5.3% on the quarter, on the back of a small 2% sequential rise in shipments. As we have seen elsewhere, the damage came from a sharp decline in the gross margin to 4.1%. The company pointed out that excluding a one-off settlement with MEMC, the non-Gaap gross margin was 15.1%. Nevertheless, a difficult quarter.

At the same time, revenues were a touch better than the $799.7m expected by the street. However, at a loss of 19 cents, non-Gaap earnings fell short of expectations of a 16 cent loss. As a further indication that Q2 will probably be the trough in activity for the sector, Suntech said that it expects shipments to rebound by 15% in Q3. It also expects to see total shipments in the fiscal year ending December of 2.2GW, generating $3.2bn to $3.4 bn in revenues – slightly down from the company’s previous estimate of $3.3bn to $3.5bn. You can read Suntech’s full press release here.

Meanwhile Trina Solar reported Q2 shipments of 396 MW for Q2, still up 23.7% sequentially. That produced revenues of $579.5m, up only 5.2% on the quarter as a result of a decline in the company’s gross margin to 17% from 27.5% in the previous quarter. EPS came in at 17 cents compared to 61 cents in Q1.  However, Trina added to the view that Q2 will represent the trough and that sales and orders have been increasing into the current quarter. The company expects to ship 480-520 MW in Q3 against 396 MW shipped in Q2. Chief Executive Jifan Gao stated: ”We have seen substantial improvement in order pipeline from our distributors and large commercial and utility segment customers across Europe and North America.” More from Trina’s press release here.

The earnings numbers from Suntech and Trina actually followed surprisingly good numbers from Yingli Green Energy (YGE) on Friday. Yingli produced Q2 revenues of $680m versus expectations of $616m. However, most interestingly the company posted an EPS of 34 cents versus an estimated 28 cents. You can read Yingli’s press release here.

We are now close to the end of the difficult Q2 earnings season for the solar sector and it is definitely looking as though most of the bad news is priced in. Tomorrow we only have earnings releases from China Sunergy (CSUN) and Hanwha Solarone (HSOL).

Moreover, in further positive signs that the sector has become heavily undervalued we are seeing both analyst upgrades and companies moving ahead with stock repurchase programs.

  • After the company’s earnings announcement, Piper Jaffray upgraded Yingli Green Energy to Overweight from Neutral and Avian Securities upgraded the stock to Positive from Negative. 
  • On August 8th the Board of JA Solar (JASO) approved a $100m share repurchase program. More detail here.
  • Yesterday, August 22nd, Renesola’s (SOL) Board approved a similar $100m share repurchase program. More detail here.
All of this tends to add credence to the view that the solar sector may now have seen the worst of the price action and will continue to recover from here. In particular, on Friday I suggested entering into a long position on JA Solar (JASO) – with the idea of buying an initial 1/3rd of a position and adding on further weakness in what was expected to be a volatile few days. Monday indeed provided the opportunity to put on an additional 1/3rd of the position and we are now bouncing quite nicely. Given continued concerns in the broader market, the days ahead may well continue to be volatile. However, the recovery trade in solar appears to be in play.

Disclosure: I am long JASO.