Trina Solar Earnings Preview: German Rush Should Boost Results

Trina Solar (NYSE:TSL) is one of the world’s leading manufacturers of solar panels and has the lowest cost of manufacturing among polysilicon based PV manufacturers in the solar industry. The company will announce its Q4 results February 23, closing a tough year for the industry. The last quarter of 2011 saw solar installations post a sharp increase in Germany, the world’s largest market as developers raced to take advantage of low panel prices before an imminent fall in subsidy levels. We expect this to result in a significant volumes boost for Trina Solar, although margins will continue to remain depressed. Other solar companies like Suntech Power (NYSE:STP) are also expected to post their results shortly.

We have a $10.15 price estimate for Trina Solar, which is slightly higher than the stock’s current market price.

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Rising volumes

Solar stocks including Trina Solar have posted a smart recovery in 2011, led by the news that Germany, the world leader in renewables, installed a record 7 GW of solar capacity in 2011.

Installations jumped in the month of December as installers took advantage of falling module prices to finish projects before the end of the year, expecting a sharp cut in subsidies in 2012. The country added 4GW of capacity in 2012 alone, forcing the government to look at ways to control the capacity that comes on line in a bid to limit subsidy costs. Growth in sales from markets like China will also boost sales for Trina Solar. The company enjoys a noticeable cost advantage over its core polysilicon PV competitors, which can help it withstand the low margin price environment.

Margins to remain depressed

One of the main reasons for the spike in module sales is that Chinese solar manufacturers have aggressively cut prices over the past year to maintain sales volumes. The strategy has succeeded to an extent, helping cut costs of solar installations faster than the fall in subsidies in major markets. However, on the downside, margins for companies have suffered. There have been multiple bankruptcies among the U.S. and European solar companies over the past few months as companies have struggled to generate adequate cash to continue operations. Lower margins will affect the profitability of Trina Solar in the last quarter.

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