LDK Solar: Analyzing "Fishy" Analyst Actions

Stock manipulation takes many forms. While it is always unethical, some of the recent practices are borderline illegal. Let’s take the actions of analysts in Cummins (CMI) recently as an example.

While the company issued guidance indicating they would have the best year in company history, analyst collectively raised estimates far above even that. When faced with the unrealistic targets, Cummins reiterated guidance. When CMI reported earnings for Q3 it was a home run. Blowout numbers with increased revenues and profits. More importantly, they were in line with guidance. The stock fell more than 20% that day due to not meeting analyst “expectations”.

You just have to wonder, why would analysts collectively ignore the company and issue inflated estimates? More interesting would be looking at short positions to see who profited most.

Following the pattern, you may look to LDK Solar (LDK). Analysts are rushing to downgrade the stock. Piper Jaffray’s Jesse Pichel went further in saying that margins would be challenged due to rising spot prices for polysilicon. Ironically, over the same period that analysts have been downgrading this offering, they are raising estimates for revenue and EPS for Q3, Q4 and FY ’07 and ’08. Further, LDK issued guidance for Q4 for EPS to fall between .37 and .41.

Analyst’s mean estimate meanwhile has recently been raised from .37 to .4. Analysts have also quietly raised their revenue guidance from 156.52 to 166.2. Is this real? Analysts downgrade citing challenged future margins while simultaneously raising estimates for earnings? Something’s fishy on Wall Street. Were I a regulatory body, I would want to insure that no one associated with any of these recommendations or inflated estimates has, or has recently taken, a large short position. The numbers just do not match logic here.

Conventional wisdom is that the big fish make the markets; that it’s better to swim with the current. That may be okay for you, but when these same big fish are costing our economy more than 2 TRILLION DOLLARS from their bad decisions and then turn on the retail investor; it’s time to stop the insanity on Wall Street. It’s time for Main Street to stand up to Wall Street and demand some answers. If you feel a company you have invested in has been the victim of this type of illegal manipulation, you can report it to the SEC at [e-mail].

Disclaimer: Author has long position in LDK.

Comments

[Josh | trad...:]

Your post neglects to mention the ongoing fraudulent inventory investigation which is 'downgrade worthy'. While I can't speak for the analysts, I assume they are alluding to the long term hazy outlook for LDK.

Even though LDK is currently a market leader, competition is fierce in the emerging solar field.

- Josh
tradegreen.ca

2007 Nov 22 09:01 AM

[bowman711:]

Regarding the 'fraudulent inventory' charges, a few of points need to be remembered:
1. The charges were apparently made by a 'disgruntled former employee.'
2. LDK has rechecked the inventory and reported that the numbers are right.
3. I believe that I recall reading that LDK had hired an independent auditor to check the inventory numbers.
4. LDK has hired some of the top law firms in the world to go after those making the charges and manipulating the stock price (suggesting that they are a) confident their numbers are right or b)confident that misreporting cannot be proved, or c) they are incredibly stupid and look forward to prison for their deceptions.

2007 Nov 22 12:43 PM

[bowman711:]

Since this type of manipulation seems to be somewhat common, what is the ultimate outcome for such companies? When the manipulators get tired of toying with the company, does it continue to languish or does it make a spectacular rebound or something in between? [I have 1,000 shares of LDK.] Should I sell and take my losses, or hold in the anticipation of an eventual rebound?

2007 Nov 22 12:30 PM

[bshimon1:]

This article is good

2007 Nov 22 02:16 PM

[jby:]

I want to send my complain to SEC because I also suspect the motives of these wise guy analysts as you did.

Would you be able to provide specific information on those analysts and their associated companies?

2007 Nov 22 03:32 PM

[stockguru:]

thanks michael!! good work!!! Piper Jaffray was actually fined for naked shorting in july

Piper Fined by the NYSE Over Short-Sale Violations (Update1)

By Edgar Ortega

July 11 (Bloomberg) -- Piper Jaffray Cos., the Minneapolis- based investment firm, was fined $150,000 in the New York Stock Exchange's seventh enforcement action involving short sales since new rules took effect in 2005.

The firm agreed to the fine without admitting or denying wrongdoing in the case, an NYSE disciplinary panel said on the exchange's Web site. Rob Litt, a spokesman for the company, said the firm had no comment.

The NYSE has levied at least $1.9 million in fines tied to so-called naked short sales, or bets that a stock will decline that are placed without properly arranging to buy the underlying securities. Tokyo's Daiwa Securities Group Inc. and JPMorgan Chase & Co., based in New York, were each fined $400,000 last year for violations of the regulations, which require brokerages to track sales of borrowed shares.

Piper Jaffray failed to comply with the rules from Jan. 3, 2005, to May 31, 2005, the NYSE said. The firm sold borrowed shares during the period without locating replacements, and in other cases failed to cover short sales in a timely manner, the NYSE said. Piper has since updated its systems to prevent similar violations, the exchange said.

Share of Piper Jaffray fell $1.08 to $53.92 in composite trading on the NYSE at 4 p.m.

To contact the reporters on this story: Edgar Ortega in New York at [e-mail]... .

www.bloomberg.com/apps...

2007 Nov 22 04:58 PM

[kevintx:]

wow a $150k fine, they really had to dig in the petty cash drawer to pay that one

2007 Nov 23 01:40 PM

[Vince Sanchez:]

Good article and on time.
Same thing applies to China Digital Tv (STV).
After reporting very good results 3Q 07 (54% + profits) next day the stock dropped 17%, and followed good rating with excellent potential due to 44% market share and new customers getting its products.
Well, you can see STV today down 36% in 2 weeks.

I think both, LDK and STV are being manipulated and estimates being inflated for no reason.

I am outside US and not familiar with complaining through SEC

2007 Nov 22 07:08 PM

[lefty:]

You have just reinterated what I've supected (known) for years.
I pay little attention to them.

2007 Nov 23 06:09 AM

[howard200715:]

Excellent article! Very eye opening! It is a shame that big WS firms are doing this in land of Laws!! SEC should definitely be proactive on this. They raise their estimate on company numbers and downgrade them at same time. Disgusting !!

2007 Nov 23 10:55 AM

[suhaas:]

Land of Laws?
Land of Enron, Tyco, Worldcom
Stop deluding yourself.
Ask the Chinese, Indians and Russians, what they think about your Land of Laws.
Laws are not for multi-nationals, or the large investment banks. It is for you-- the micro-investor.

2007 Nov 23 12:59 PM

[suhaas:]

Land of Laws?
Land of Enron, Tyco, Worldcom
Stop deluding yourself.
Ask the Chinese, Indians and Russians, what they think about your Land of Laws.
Laws are not for multi-nationals, or the large investment banks. It is for you-- the micro-investor.

2007 Nov 23 12:59 PM