LDK Solar's Growth Potential Offset by Gross Margin Pressure

8/12 - "If there was a dark spot in the announcement, it revolved around gross margins. Although average sales prices were higher than most analysts expected, the cost of polysilicon (or poly) continues to be high. Gross margins came in at 25.4% which compares unfavorably to 27.7% last quarter and 35.2% a year ago. Management stated that they expect margins to continue to show weakness in the third quarter before rebounding in the fourth quarter and into 2009."

"Any delay in LDK’s plans to produce raw materials would likely be a disappointment to investors. But the positive side of this argument is that if production goes according to plan, the likelihood for further appreciation in the stock price is very good.

Demand for solar wafers continues to be strong even with decreasing subsidies out of Spain. It appears the private marketplace is ready to step in and pick up the slack in demand that may have been released last month. With lower prices on most solar wafer producers, there should be ample opportunities to pick up strong investments at discounted prices. I believe LDK is one of those opportunities."

8/11 - "There is a good chance for $2.75 in earnings in 2008 for LDK Solar - even taking into account the $40 price tag in after hours that is under 15x forward earnings if the $2.75 is good. If you go with analysts ($1.70 + $0.40 beat) = $2.10 the forward PE ratio = 19. For triple digit growth. Instead people are flooding into retailers and restaurants (and autos and airlines and financials) for similar PE ratios... for 1/10th the growth. Because thats what the quant hedge funds say is "the truth"."

"Look, if restaurant stocks and clothing stores deserve forward P/Es of 16-19, I don't care if oil goes to $60 - much of the rest of the world moves to alternative energy because they don't want to be in the same pickle the U.S. has now twice put itself through (1970s, late 2000s). This company is (with no growth from this quarter) going to put up a $2.75 year - so let's call it $3. By simply putting a "clothing store" P/E ratio on it you are talking mid 50s. But companies growing triple digits generally get higher P/E ratios than companies selling sandwiches, at least in the market I grew up in. But maybe not in this era. If you dared give a company which can grow 30-50% year over year for the next 3-5 years a PE ratio in the mid 20s, you'd dare to dream of $75. I know, it sounds crazy - I come from the old school where earnings actually drove stock prices. Maybe one day humans will win out over computers again.

The most direct parallel to LDK Solar is ReneSola (SOL) which should benefit directly from such fantastic results. SOL is trading at a whopping 11x forward estimates. But this whole sector tends to trade together so perhaps its just a moot point - throw a dart. That's what the market does."

8/7 - "Akeena Solar's (AKNS) Q2 earnings were a flop yesterday. The solar power systems installer missed consensus on EPS (-$0.18 vs. -$0.16 consensus) and completely blew revenue ($7.1 million vs. $11.1 million consensus).

But AKNS bull, Theo O'Neill of Kaufman Bros., is unfazed:

'We are positive on these shares as we believe that management has hands-down developed the best residential solar solution based on appearance and price. We are positive because we believe that Akeena would make an ideal acquisition target when the solar industry begins consolidation.'

'We believe the now accepted loss of the Federal Investment Tax Credit in 2008 is the reason for the miss. All other indicators of demand remain very high. The 18-month depletion of the solar residential credits resulting in $170 million of residential solar panels in the New Jersey program and the demand in the solar program in Connecticut demonstrate the robustness of demand.'

"Kaufman Bros. maintains BUY on Akeena Solar (AKNS), target $12."