On Mar 26, we maintained our Neutral recommendation on vertically-integrated solar manufacturer, ReneSola Ltd. ( SOL ), following appraisal of its fourth-quarter results.
Why the Neutral Recommendation?
On Mar 14, 2013, ReneSola announced fourth-quarter 2012 results. Fourth-quarter 2012 adjusted loss per American Depositary Share (ADS) of 36 cents beat the Zacks Consensus Estimate of 37 cents loss per ADS. Numbers also were short of the year-ago quarterly loss of 48 cents per ADS.
Net revenues for the quarter rose to $306.5 million from $187.7 million in the prior-year quarter, as a result of a significant increase in solar module shipments, particularly to China. Reported quarterly revenue also beat the Zacks Consensus Estimate of $252 million.
Total solar product shipments in the fourth quarter of 2012 were 713.2 megawatts, an increase of 33.9% from 532.8 megawatts in the third quarter of 2012. The sequential increase in solar product shipments was mainly the result of increased demand for the company's solar modules across a number of geographic regions, particularly China, as well as the result of seasonally strong year-end demand and the increasing competitiveness of solar power as a power source.
Going forward, in the first quarter of 2013, the company expects total solar wafer and module shipments in the range of 660 MW to 680 MW. Revenues are expected in the range of $260 million to $270 million and gross margin is expected to be positive. For the full year 2013, the company expects total solar wafer and module shipments in the range of 2.7 GW to 2.9 GW.
Following fourth-quarter results, only 1 estimate was revised upward over the past 30 days, with no corresponding downward revision. The Zacks Consensus Estimate for 2013 now stands at a loss of $1.32 per ADS. Earlier the company has delivered positive earnings surprises in only 1 of the past 4 quarters.
Renesola and its solar peers like JA Solar Holdings Co., Ltd. ( JASO ) are currently witnessing a steep drop in Average Selling Prices. Also, the current macro scenario does not bode well for the solar industry, which thrives mainly on subsidies and grants.
In its short operating history, ReneSola has constantly fine-tuned, diversified and enlarged its product mix. The company proved itself very resilient and adept at renovating itself with changing market dynamics. In the initial stages, the company sold solar wafers in return for solar cells that were assembled into solar modules, as the latter command a higher price than wafers as finished products. Extension of the product line helps it realize cost synergies by utilizing some of the silicon materials in the multicrystalline process reclaimed from the monocrystalline wafer production process. ReneSola is also focused on cost reduction through reducing its module and wafer processing costs. The company in this respect has taken prudent steps like the use of upgraded furnaces and sourcing lower-priced raw materials. Accordingly, Renesola carries a Zacks Rank #2 (Buy).
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