Suntech Power Shining Bright

| About: Suntech Power (STP)
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Extending my recent trend of posting about stocks I own, I was up bright and early at 4:45AM PST for the Suntech Power Holdings (NYSE: STP) earnings release and conference call.

All in all it was a good quarter from the perspective that anyone doubting Suntech's potential to continue its blazing growth has to question their spreadsheet (OK, I admit it, I had my doubts). Non-GAAP EPS came in at $0.21, beating the $0.19 estimates. Revenue came in at $163m, which is 188% year-over-year growth. Projections for Q4 revenue were $226m to $234m - sequential growth of 39-44%, not too shabby. Though Q4 revenue projections may seem to be below analyst estimates, I'd note that analyst estimates are all over the place - for example Lehman has a projection of $274m, while Merrill has it pegged at $209m.

It sounds like the MSK acquisition has been a bit slower than expected to integrate and that hurt results somewhat, but they sounded very positive on the prospects going forward. The core Suntech business seems to be well on track to what investors have heard from management previously and, though it didn't make for a particularly exciting conference call, it does provide comfort for results going forward. Gross and operating margins in the core Suntech business came down as expected, but had some upside to what some of the analysts had expected.

One item that jumped out at me on the call, though, was the projection that over the coming years ASPs would fall at a rate of 5% while raw material prices would fall at a rate of 10% - which would theoretically result in some nice margin upside for Suntech. In such a young and fast-growing industry, though, it's really tough to make reliable projections out too far.

There was very little pre-market action on the stock and saying that early market action has been tepid is an overstatement - though over 800k shares have changed hands in the first 15 minutes or so of the market open, the stock is up about 0.5%. There doesn't seem to be a whole lot of conviction in the market right now, so it could take some time for people to get in touch with their feelings on Suntech.

Using a 17% discount rate, I am come up with a $32 price target, so as long as this is trading in the low $27's (currently it is) it's near that 20% error range to the upside. I'm a hold here because I have a good number of shares already, and will likely keep holding until the prices runs way up or the story starts breaking down.

See: Suntech Power Holdings Q3 2006 Earnings Call Transcript

Disclosure: I am a holder of STP stock

STP 1-yr chart: