LDK Solar: Thompson Gets It Wrong

The smear campaign aimed towards LDK Solar continues today with the Thomson Financial News author Ryan Vlastelica penning "LDK unable to provide specific timeframe for end to audit investigation". When you skip the sensational headline you find that LDK Solar issued updated (raised) guidance for Q4 and reports that the audit will be concluded no later than early December.

I'm not sure how specific Mr. Vlastelica thinks a company can be when an third party is auditing allegations. Perhaps Mr. Vlastelica's employers at Thompson will educate him about the legal ramifications of forward looking statements in order to avoid such misleading headlines in the future. In fact, considering the company is faced by no fewer than 7 class actions stemming from false allegations of a disgruntled ex employee and the firm must run all PR through two of the top law firms in the world, one would be wise to conclude that statements fall well withing the conservative range and are above reproach.

Which brings us to another article penned today and appearing on the AP news wire. The headline claims LDK, according to Thompson Financial, is coming in at the low end of guidance yet business "remains strong". Backing up this headline, the anonymous author states: "The mean estimate of analysts polled by Thomson Financial sees earnings of 41 cents a share for the fourth quarter on revenue of $164.4 million". 

I was curious so I went to Reuters to check the numbers myself and found that the Mean Estimate for Q4 is $163.12, with Mean Estimate for EPS for Q4 is currently .39. I'm not sure who the good folks over at Thompson are polling but it's not the analysts listing coverage and making their estimates public at Reuters. Or is it?

Recently there have been several negative statements by analyst ranging from downgrades to initiations at sell. However, mysteriously it seems someone is surreptitiously telling Thompson Financial that they are expecting even greater things than forecast. Therein lies the fundamental disconnect that could make you money. When Piper Jaffray and Goldman Sachs publicly state a company's fundamentals are challenged and put them at a sell, then privately raise estimates (and the company still guides in line!) something smells and it's not LDK Solar.

The writing is on the wall. Today's raised guidance for Q4 and a timeframe for release of audit results is a clear message from LDK management that they are on solid ground with outstanding fundamentals. With limited earning potential now available to the short position the swing trade has begun. Positions are being accumulated in anticipation of the ride up. Get ready in the coming weeks for the upgrades and the positive news articles (likely from the same sources so negative now). Watch short term memory dissipate as profits are made and losses shrink and the old axiom of "all's fair" once again rings true on Wall Street.

Disclosure: Author is long LDK

Comments

[GH]

Mr. Schaffer,

The points your post makes are well taken. But you are guilty of the same kind of incorrect re-interpretation as Mr. Vlastelica; you wrote:
"LDK Solar [...] reports that the audit will be concluded no later than early December" when as you say yourself, the company is in no position to be that specific. What they actually said was: "Due to the independent nature of the Audit Committee's ongoing investigation, LDK Solar cannot provide a specific timeframe for its completion. However, this is an important issue, and the Audit Committee is committed to resolving this issue as quickly as possible. The Audit Committee expects to be able to report the findings from the investigation in early December and the Company would be able to report earnings for the third quarter shortly thereafter.".

[michaelshaffer]

Thank you for the clarification. My reason for the interpretation was based on LDK clearing the statement you posted through two of the worlds top law firms. Knowing this, it is no leap of faith to make the assumption that LDK has not issued a foreward looking statement that would leave them liable. Therefore, this would have to be a conservative estimate easily attainable, based on all the information currently available to the company and their counsel. While nothing in life is certain, I've learned that banking on a top litigator not shooting themselves in the foot is pretty close to it.