ReneSola’s Stock May Be Challenged In The Near Term, Says Roth Capital
In a research note released today, Roth Capital analyst Philip Shen reiterated a Neutral rating on Renesola Ltd (SOL) with a $2.75 price target, following the company’s second quarter earnings results, including revenues of $387mn vs. consensus of $401mn and Shen’s estimates of $390mn. GMs were higher-than-expected at 14.7% vs. guidance of 12-14% and Shen’s estimates of 12.5%.
Shen noted, “Although Q2 margins improved and opex was light, the outlook suggests lower-than-expected volumes in Q3. Notably, management did not provide 2014 shipment guidance. Relative to peers, SOL is pursuing a unique strategy of de-emphasizing upstream capacity and focusing on OEM partnerships and global DG markets. We remain on the sidelines until SOL demonstrates sustainable profits from its DG/partnership strategy.”
Furthermore, the analyst wrote, “We believe SOL’s stock may be challenged in the near term given the company’s weak Q3 shipment guidance and the lack of a 2014 outlook. Management de-emphasized volumes and is instead focusing on higher margin revenues. While this is laudable, the lack of 2014 shipment guidance, in our view, was a negative. Relative to peers, SOL is pursuing a unique strategy of de-emphasizing upstream capacity and focusing on OEM partnerships and global DG markets. We think there is merit to this strategy: (1) The company has established a network of OEM partners (1.1GW of module assembly capacity growing to 1.5GW by mid-2015) throughout the world to manage the ever-changing tariff landscape; (2) The diversified module assembly base is based on partnerships with local companies and nearly eliminates SOL’s capex requirements; and (3) In contrast to typical Chinese companies, where China serves as the manufacturing base and international brands are enhanced, SOL is turning this model on its head by using an international manufacturing footprint (i.e. outside of China) and promoting its Chinese ReneSola brand. Over time, with the focus on smaller DG markets, we believe SOL has the potential of establishing a reputed brand in a number of developing solar markets that may be small today, but meaningful in size in the years ahead. We note that SOL may even bring to bear its other upstream manufacturing expertise and help local OEM companies establish additional types of manufacturing capacity, such as cell. Risks to the strategy include lack of control over capacity, OEM partners moving away from SOL, higher inventory, etc. All in, we are encouraged by SOL’s progress, but remain Neutral until SOL demonstrates sustainable profits from its DG/partnership strategy.”
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Philip Shen has a total average return of -2.1% and a 40.4% success rate. Shen has a -35.2% average return when recommending SOL, and is ranked #2832 out of 3228 analysts.