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To complete our previous article, we will go over the best-case Q4 EPS scenario for the remaining five Chinese solar ADRs. In our last article we posted our Q4 EPS estimates based on a module price of $1.18 per watt. This is a reasonable best case assumption for Q4. This ASP assumption would reflect a drop of roughly three cents from Q2 ASPs.

Next week, we will go over the most likely case and then followed by a look at the worst case estimates.

In this article we will go over the following five companies:

  • Canadian Solar Inc. (CSIQ)
  • China Sunergy Co., Ltd. (CSUN)
  • Daqo New Energy Corp. (DQ)
  • Hanwha Solarone Co., Ltd. (HSOL)
  • JA Solar Holdings Co., Ltd. (JASO)

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

Stock

Our Q4 EST

Street EST

% DIFF

CSIQ

-0.02

0.26

-108

CSUN

-0.41

-0.15

-171

DQ

0.30

0.28

8

HSOL

0.04

0

N/A

JASO

0.13

0.11

20


Even with friendlier metrics, two companies (CSUN and CSIQ) could post dramatic earnings misses. It should be noted that we have the least confidence in our estimates with both companies so it is possible that they could state much better results. As well, the Q3 earnings conference call might provide reasons for EPS upgrades.

CSIQ

CSIQ

0.13

0.16

-0.04

-0.02

* Quarterly EPS numbers (Q3 and Q4 are estimates)

Under this assumption, CSIQ could close out the year with a small profit. But it could post losses for the last two quarters. As this is the best case, the next few months are not looking good for the stock price.

CSUN

CSUN

0.09

-0.42

-0.26

-0.41

It appears that CSUN could post a third consecutive quarterly loss for 2011. In addition to ongoing quarterly losses for this year, CSUN still has to deal with a lawsuit with Renewable Energy from Norway (REC).

DQ

DQ

0.99

0.73

0.45

0.30

Like Jinko Solar (JKS), DQ should have a pretty solid set of quarterly numbers. However, each quarter is in decline from the previous quarter. Poly prices could fall dramatically with the fairly large ramp-ups of poly capacity for 2012.

HSOL

HSOL

0.22

-0.12

-0.02

0.04

HSOL could post a mild beat of the Street. Under the best case scenario, HSOL should post a modest FY EPS of about ten cents per share.

JASO

JASO

0.41

-0.22

0.11

0.13

Like HSOL, JASO could provide a mild beat of the Street estimates. For JASO, because of their focus on cell production, their EPS numbers will vary greatly with cell pricing changes.

Of the eleven solars discussed in the two articles, Jinko Solar Holding Company Limited (JKS) remains the premier solar stock for 2011.

So could a solar bull market emerge in Q4?

The solar fortunes are totally dependent on module ASPs. We will demonstrate over the next few weeks that the most likely case and the worst case will not be terribly supportive of a start to a bull market. In fact the worst case is a very good reason for potentially closing out all positions. This article focuses on one quarter. Without question, an investor should look at more than just one or two quarters. Our recently published book outlines the three cases for 2012. In a few weeks, we will go over the most likely case for 2012 and how the estimates might impact stock prices for next year.

The Suntech (STP) article that came out this morning is somewhat sobering. It appears that the glut of modules is bad. The CEO feels the glut could be as high as 11 GW. For 2011, total demand could be about 20 GW. If this is true, then the other two cases to be presented will hold the greatest likliehood of ocurring for Q4.

On the plus side Renewable Energy (REC from Norway) has just announced possible permanent closure of roughly 45% of wafer capacity.

Disclosure: I am long JKS, DQ, YGE.

Source: The Emerging Solar Bull Market - Part II