Solar panel producer, Suntech Power Holdings Company Ltd. (STP) signed an agreement with German engineering conglomerate, Siemens AG (SI). Per the agreement Suntech will supply photovoltaic modules for Siemens planned European solar projects.
Based in Wuxi, China, Suntech Power Holdings Company Ltd. is a solar energy company that designs, develops, manufactures and markets a variety of photovoltaic (PV) cells and modules, including a broad range of value-added building-integrated photovoltaic products.
Looking forward, Suntech expects revenue for the fourth quarter 2010 in the range of $820 million to $870 million, with a gross margin of 17% and operating margin in the range of 9% to 10%. Suntech expects to ship more than 1.5 Gigawatts (GW) of solar products in fiscal 2010, resulting in revenues in the band of $2.78 billion to $2.83 billion.
The topline is expected to grow by 64% year over year, while the gross margin for the year is expected to be 17% and operating margin 6.5%.
The capital expenditure of the company for 2010 is earmarked at $350 million. Suntech expects to attain 1.8 GW of installed cell and module production capacity and 500 Megawatts (MW) of installed wafer capacity by the end of 2010. Suntech intends to fund the capital expenditures with cash on hand, operating cash flow and existing credit lines.
Suntech Power is one of the largest producers of PV solar modules under its proprietary Pluto technology with a geographically-diversified customer base. Positive factors include ongoing expansion programs, higher conversion efficiency through its Pluto technology-enabled modules, subsidy program in China, and improving operating efficiencies.
However apprehensions over the tepid module demand in Europe, rising competition, and financial stability of its customers overshadow the positives.
At present, Suntech in terms of forward earnings estimates is trading at a discount versus peers like Covanta Holding Corporation (CVA) and First Solar Inc. (FSLR).
However on account of its leadership position in cell conversion efficiency and improving module manufacturing cost, we feel the discount is unwarranted and maintain the Zacks #2 Rank, which translates into a short-term Buy rating. Considering the fundamentals, we are maintaining our Neutral recommendation on the stock.
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