The Emerging Solar Bull Market: The Best Case EPS Estimates For Q4 (Part I)

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 |  Includes: JKS, LDK, SOL, STP, TSL, YGE
by: helios q

Q3 is now pretty well baked into current stock prices. Seven of the eleven Chinese solars could record lower Q3 earnings over Q2. However, six of the eleven solars could actually beat the Street estimates for Q3.

So when the Q3 numbers come out in about six weeks from now, the Q3 numbers will not mean too much. Instead, investors will be looking towards Q4 and 2012 prospects. Although things look pretty bad right now, it is important to look at the different outcomes for Q4 based on module ASPs.

Over the next three weeks, I will go over three scenarios for Q4.

  1. The Best Case Scenario - This will not be the absolutely best case but a reasonable best case.
  2. The Most Likely Scenario
  3. The Worst Case Scenario - This will not be the absolute worst case but a reasonable estimate of the worst case.

This is the same approach taken in my recently published book, "The Emerging Solar Bull Market for 2012." In that book we go over the three cases for 2012 and how those three cases will impact the stock prices for the eleven solars.

Since we are mired in losses, I will start off with the most optimistic scenario. This will provide a happy start to our look into Q4. Under this scenario, I am assuming that module ASPs will only fall from our estimated $1.21 per watt for Q3 to about $1.18 per watt for Q4. Now the bears will argue that some spot prices are already pushing $1.14 or less but keep in mind that contract prices lag spot prices. As well, it is my hope that module prices start to stabilize and perhaps start rising modestly.

Under the best case, eight of the eleven solars will beat the current Street estimates.

For this article, the six solars discussed in this article are listed below:

  • 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 Energy Holding Co. Ltd. (NYSE:YGE)

Q4 Estimates Compared to the Street Estimates Under the Best Case Scenario

Stock

Our Q4 EST

Street EST

% DIFF

JKS

1.11

0.62

78

LDK

0.09

0

N/A

SOL

-0.01

-0.03

78

STP

-0.08

-0.08

0

TSL

0.73

0.42

73

YGE

0.17

0.07

148

Click to enlarge

The results are good but not spectacular. In this group of solars, five of the solars will beat the Street estimates. YGE, TSL and JKS could provide very strong earnings upside.

JKS

If this company posts $1.11 for Q4, JKS will simply confirm that it is in a class of its own for 2011. They continue to strongly surprise each quarter and provide solid results even in a declining market.

LDK

If they make 9 cents, then they will reverse two quarters of losses. Although I still like LDK, they do have a history of failure. This is a big concern. For 2012, this is one company with huge upside potential (if they can perform).

SOL

This company could be looking at a continuation of a second quarterly loss. Although, they accurately predicted potential year end ASPs when the rest of investors and analysts laughed at them, they failed to understand that if module ASPs collapsed, then so would wafer ASPs. That logic just did not make sense.

STP

STP could show three consecutive quarters of losses. They could end up with a full year loss of 32 cents. Overall, this is not good for share prices. Although we see them profitable for 2012, their profit position seems precarious right now.

TSL

73 cents and a 73% beat for Q4 will put TSL back in the ball game. This would allow a potential full year EPS of around $2.

YGE

At 36 cents, YGE was the pleasant surprise of Q2. For Q3 and Q4, they should stay in the green but at lower numbers than Q2. They could end the year at close to a dollar in EPS.

Disclosure: I am long JKS, DQ, YGE.