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It has been a devastating few months for share prices of solar companies - in particular, the Chinese solars. Although the past few days indicate that we may have reached a bottom, no one really knows where our stock prices will go in the short term. In this article, we will present one component of share price determination: earnings surprises against Street estimates.

This is my first post on Seeking Alpha and it is an introduction to our website at www.heliosq.com where we specialize in producing EPS estimates for the eleven Chinese solar ADRs listed on the US exchanges. The eleven solars discussed in this article are listed below:

  • Canadian Solar Inc. (NASDAQ:CSIQ)
  • China Sunergy Co., Ltd. (NASDAQ:CSUN)
  • Daqo New Energy Corp. (NYSE:DQ)
  • Hanwha Solarone Co., Ltd. (NASDAQ:HSOL)
  • JA Solar Holdings Co., Ltd.(NASDAQ:JASO)
  • Jinko Solar Holding Company Limited (NYSE:JKS)
  • LDK Solar Co. Inc. (NYSE:LDK)
  • Renesola LTD (NYSE:SOL)
  • Suntech Power Holdings Co., Ltd. (NYSE:STP)
  • Trina Solar Limited (NYSE:TSL)
  • Yingli Green Enery Holding Co. Ltd. (NYSE:YGE)

Our full year estimates will be revised after the company Q2 earnings releases over the next few weeks. Using our current knowledge of the solar landscape, the table below lists our full year estimates and compares them to the Street estimates.

In a later article we will go over share price estimates for the next 12 months. For now we will just comment on some of the major potential surprises to the Street estimates.

CSUN - This is the largest potential downside surprise at 389%. It is possible that CSUN could provide a positive surprise in H2 but with our current assumptions, it appears that they are headed for a loss for the year. As the Street estimates are an average, many analysts may not have caught up with the latest CSUN guidance. Just as an example, the Street estimates an 18 cent loss for Q2 versus our estimate of 36 cents.

JKS - We have examined JKS under many different assumptions and the company EPS numbers look very strong for 2011. We have a difference of 85% over the Street. This is most likely explained by the Street taking a more conservative approach to shipments for 2011.

SOL - SOL could post a negative surprise of -44% from the Street estimates. Just as with CSUN, we do not believe that many analysts have updated H2 numbers based on the latest SOL conference call. It appears that they are headed for a loss for Q3 and possibly Q4.

We believe that the two big winners for H2 will be LDK and JKS. This will be discussed in our next article when we present our take on share price movements over the next twelve months.

Full Year Estimates Versus the Street Estimates
Helios Q Street %
Stock Estimate Estimate Difference
CSIQ 1.07 1.19 -10.2
CSUN -0.46 0.16 -389.1
DQ 2.86 2.25 26.9
HSOL 0.96 0.74 30.3
JASO 0.80 0.71 12.5
JKS 10.72 5.78 85.5
LDK 2.79 2.00 39.4
SOL 0.38 0.68 -44.2
STP 0.68 0.76 -10.1
TSL 2.62 2.57 2.0
YGE 1.49 1.08 38.0

Notes:

  1. As we go further out from the current quarter, the chance for larger variations from the actuals will increase greatly and could be magnified by the unexpected. Using the latest information, these are our estimates to date. We will update these numbers from time to time with new information impacting our solars.
  2. We assume the module ASP's will average $1.30 for H2.
  3. We have the least confidence in our estimates for CSIQ, CSUN and HSOL.
  4. Under the right conditions, CSUN could provide a pleasant upside surprise but since they have a history of disappointing, we will keep our current low estimate.
  5. It is possible for module ASPs to trend below $1.30, but if strong demand caused modules pricing to trend up to $1.35 or more for H2, then we would see a significant lift from these current estimates.
  6. In terms of pure investment, JKS and LDK remain our favored stocks. This quarter's Q2 conference calls will provide valuable insight into H2 for both companies.
  7. Estimates may or may not be based on company guidance. We approach each quarter based on many factors including guidance, company history of sandbagging, maximum quarterly production and general supply and demand environment for solar products.
  8. Our general approach is to start from scratch and build up the estimates. We do not start from company guided gross margin numbers and revenue or shipment numbers. We may crosscheck on those metrics.
  9. Our estimates do not include one time entries such as forex gains or losses.

Disclosure: I am long LDK, JKS.

Source: Possible Solar EPS Surprises for Q2