Suntech Power's (NYSE: STP) stock price was down 2.5 percent to $8.34 in advance of the firm's Tuesday morning Q3 earnings announcement.

The world's largest vertically integrated solar power firm, based in Wuxi, China, reported an EPS of $0.18 on revenue of $744 million with slightly lower ASPs and a slightly lower 16.4 percent gross margin.  Third Quarter 2010 Highlights

  • Total net revenues were $743.7 million in the third quarter of 2010, an increase of 19.0 percent sequentially and 57.2 percent year-over-year.
  • Total PV shipments increased 25.3 percent sequentially and 107.1 percent year-over-year.
  • Gross profit margin for the core wafer to module business was 18.2 percent in the third quarter of 2010.
  • Consolidated gross profit margin was 16.4 percent in the third quarter of 2010.
  • GAAP net income attributable to holders of ordinary shares was $33.1 million, or $0.18 per diluted American Depository Share.
  • An update from management on Pluto technology "resolved bottlenecks" and at 6 megawatts per month production rates.  Plan to shift to Pluto when they have "breathing room."
  • STP announced the acquisition of 375 megawatts of wafer capacity from one of its equity holdings, Glory Silicon. STP is acquiring the 70 percent of the capacity it doesn’t own for $127 million; this implies $0.48 per watt, ahead of the $0.35 to $0.40 capex per watt at which standard new wafer capacity can be built. 
  • Suntech reached production capacity of 1.6 gigawatts and said that they "are on track to achieve our goal of 1.8GW cell and module capacity by the end of this year."
  • Andrew Beebe, CCO at STP, spoke of Suntech's distinction as "bankable supply" and that they were sold out in Q1 2011 and that Q2 was looking strong as well.
Q4 Guidance
  • In the fourth quarter of 2010, Suntech expects at least 10 percent sequential growth in shipments.  Suntech looks to ship more than 1.5 gigawatts of solar products in 2010, representing year-over-year growth of at least 113 percent.
  • Consolidated gross margin in the fourth quarter of 2010 is expected to be approximately 17 percent
  • Suntech targets to achieve 1.8GW of installed cell and module production capacity by the end of 2010.

Income from operations was $62.6 million for the third quarter of 2010 compared to a loss from operations of $19.1 million in the second quarter of 2010.

The stock is sagging by 52 percent since the start of 2010.  A simple valuation puts Suntech with a forward P/E of 9.5x FY11 EPS estimates, compared to 15.2x for First Solar (NASDAQ: FSLR), 7.7x at Yingli Green Energy (NYSE: YGE), and 7.2x for SunPower (NASDAQ: SPWRA).

Data from Bloomberg show that 10 analysts have a Buy rating on the shares, 21 have a Hold, and ten recommend to Sell the stock. The analyst's price target average is $10, with a high of $19 and a low of $6. 

Wedbush believes that "end-market demand is likely solid ahead of year-end subsidy cuts in key markets such as Germany and Italy." The investment bank thinks that "the demand decline in European markets will not be offset by an increase in Canada, the U.S., and China" and that "Suntech's cost structure lags that of competitors."

Barclays Capital expects that "stock price performance will likely depend on the magnitude of Q3 beat, margin outlook and vertical integration progress" with "little upside to already bullish 2011 outlook. German market data points could remain a near term overhang on shares and limit meaningful upside, in our view."

Suntech Power Historic Margins, Revenue and Stock Price

(from Seeking Alpha)

STP-Q3