This is what Piper's Solar team headed by Ahmar Zaman has to say:
LDK remains our top pick after issuing 2011 guidance that was 32-50% higher than our original forecast. Volumes are strong and will remain so in 2011 as the company is sold out for poly, 80% sold out for wafers and sold out for 1H11 for modules. Capacity expansion will follow for wafers (3.6GW), modules (2.5GW) and cells (1.3GW). Pricing for wafers will increase slightly in 4Q before flattening out in 1H11, and strong module pricing and poly sales will grow margins into the low-to-mid 20s in 2011. We reiterate our Overweight rating and raise our price target to $25 from $15 on a substantially brighter outlook for 2011.
Strong demand drives capacity expansion. LDK is sold out for poly in 2011, 80% sold out for wafers and sold out for 1H11 in modules with prepayments. This strong demand visibility has driven the company to expand capacity by YE2011 to 3.6GW for wafers, from 2.8GW (YE2010), 2.5GW for modules from 1.5GW (YE2010), and 1.3GW for cells from 180MW (YE2010). Poly capacity has already been expanded to 11k MT this year, with the company considering whether to add to this in 2011.
Strong cash flow from operations likely helps pay for 2011 capex. LDK reported cash flow from operations of $140m which on an annualized basis implies $560m cash flow from ops. We believe there is room for improvement to $200m a quarter in 2011. Thus, cash flow from operations plus the line of credit from China Development Bank is more than sufficient to cover projected 2011 capex of $500-$600m, plus likely pay down some debt
Strong 4Q10 and 2011 guidance. LDK calls for $710-$750m in 4Q10 revenue on 580-600MW of wafer shipments and 120-130MW in modules. We look for pricing to remain flat for wafers and to tick down 7%, to $1.75, for modules from very strong 3Q10 levels, putting the company at the top end of its guidance. We conservatively forecast LDK at the bottom of its 2011 guidance of $2.9b-$3.3b, increasing our topline forecast 32% from our previous forecast of $2.2b in 2011. We also model the company at the bottom of its gross margin guidance (22%-28%) at 22.6% to get EPS of $2.50 vs. $1.50 previously.
Notablecalls: This $25/per share price tx from Piper should be an attention grabber today. Stock should move up.
Can't believe they are sold out for H1 2011. Means prices are bound to move up. Means ests may be way too low.