Trina Solar Revised to $8 on Debt, Falling Margins

10.37
Trefis
TSL: Trina Solar logo
TSL
Trina Solar

Trina Solar (NYSE:TSL) came out with its quarterly earnings on Wednesday, posting a 10.6% sequential decline in module shipments as falling global demand and seasonal weakness took toll on the company’s results. [1] The company saw its revenues fall by nearly 20% in Q1 compared to the previous quarter and gross margins fell to 5.8%, in part because of the duties imposed on the company’s products by the U.S. government. Trina’s competitor Suntech Power (NYSE:STP) also reported falling shipments and margins in the quarter in its results. Management stated that they expect to see shipment volumes rising over the next few months and for an improvement in margins.

We have revised our price estimate for Trina Solar to just under $8.00. This is at a 40% premium to its current market price.

Click here for our full analysis of Trina Solar.


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Tough conditions

Trina Solar’s gross margins fell to 5.8% in Q1, from 7.1% in Q4 2012, in part  because of a $26 million charge to cover the duties imposed by the U.S. Department of Commerce on its sales in the country. Overall, the company reported an operating loss of $39.9 million in the period. Much like other solar players that already reported earnings, Trina’s results show the impact of falling global demand for panels and lower prices for solar equipment. The company also saw a reduction in its cash balance and an increase in its debt in the past quarter, which resulted in a reduction in our price estimate for the stock. The company’s strong cash position in comparison with its competitors was a major source of strength.

According to the company’s outlook, it is expecting to ship around 2 GW of panels in 2012 on the back of a slight recovery in demand over the next few quarters. Trina expects to report gross margins of around 10% for the whole year. The company is already implementing cost cutting measures and will continue with plans to streamline operations to adjust to the low pricing environment that is prevailing in the industry. Management plans to focus on delivering innovative and technologically driven, differentiated products to compete in the increasingly competitive market. We have updated our sales estimates for the company in Germany and the U.S. and our margin estimates which contributed to the downward revision in our price estimate.

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Notes:
  1. Trina Solar Announces First Quarter 2012 Results, Trina Solar []