Suntech Power Shares Light Up After Reporting Earnings
Earlier in August, Suntech Power, the Chinese solar company, warned it would miss earnings for this present period due to an impairment charge, as well as restructuring costs at their Shanghai production facility. Today, Suntech reported non-GAAP EPS of $0.03 per share, slightly below analyst estimates of $0.06 on revenues of $625.1 million, ahead of estimates at $600.8 million. With the extra costs for the quarter, Suntech reported a GAAP loss of $174 million, or $0.94 per share, which falls within the high end of the company’s earlier warning.
Despite the earnings miss, shares of Suntech Power are trading higher in early trading today on account of better than expected guidance. The company anticipates total shipments for 2010 of 1.5 gigawatts of modules, higher than the prior guidance of 1.3 GW. Along with the earnings announcement, Suntech also announced an increase in their production capacity for 2010 from 1.4 gigawatts of modules to 1.8 GW.
We have seen some very strong earnings and guidance in the solar sector, but stocks have sold off (take SunPower (NASDAQ: SPWRA) for example); however, with Suntech the market has had the last two weeks to reprice what was a known earnings miss.
The solar sector on the whole is experiencing a strong increase in demand, and the increased production capacity bodes well for Suntech to meet escalating demand and to achieve better cost-per-unit metrics. Suntech’s Chairman and CEO, Dr. Zhengrong Shi, had the following observations on the quarter:
“Despite successful sales expansion and strong execution during the second quarter, our financial results bear the significant impact of our Shanghai facility restructuring and Shunda Holdings investment impairments. These were necessary adjustments to make, and they have no impact on our core manufacturing operations. Now that they are behind us, we are in a better position to address the growth we are expecting in our core business….
With an outlook of ongoing growth in solar demand, we have decided to accelerate the next phase of capacity expansion and now target to achieve 1.8GW of cell and module capacity by the end of 2010. This will enable us to increase our 2010 shipment target from 1.3GW to 1.5GW to help support our growing global portfolio of Suntech customers and drive market share expansion.”
After issuing their earnings warning in early August, Suntech shares proceeded to test recent strong support in the $8.50 area. The stock now has a strong tradeable level to buy against:
Suntech is the Chinese solar company with the largest existing presence in the US market. In the wake of the Gulf Oil Spill and the European subsidy cuts, the US is an incredibly important growth region for solar companies. Combined, the US and China represent the lion’s share of present and anticipated growth in the solar market, and Suntech is well positioned to benefit in both regions. That being said, US-based solar companies with superior technology like First Solar (NASDAQ: FSLR) and SunPower (NASDAQ: SPWRA) may offer better long-term investment opportunities as detailed in “Your Cheat Sheet to Investing in the Sun“.
Disclosure: Long FSLR and SPWRA