China Sunergy Co. Ltd. (NASDAQ:CSUN) is seeing shares trade lower after today’s disappointing earnings. Lazard Capital Markets’ Sanjay Shrestha has maintained his "Sell" rating today with a whopping $6.00 target ($7.59 today, down 5.5%). This is an important call as far using "analyst research" as a potential binary impact rather than a one-off incident that is news rather than noise. Shrestha covers many alternative energy stocks and he is one of the more bullish, yet realistic, analysts in the sector.
China Sunergy reported 3Q revenues of $48.9 million, below consensus of $63 million… "and our estimate of $55 million" and down 12.9% from $56.2 million in 2Q; EPS for the quarter was $(0.11), versus consensus of $(0.07). Gross margin deteriorated again sequentially… "Most importantly, the company’s core business (core cells sales) gross margin was 1.5% versus 5.9%." Cash burn was about $24 million, with cash balances at $76 million. "The company stated on the call that it will need to access the capital markets in the near future."
Shrestha concludes, "We are maintaining our SELL rating with a $6 price target, which reflects a 15x multiple on our 2009 EPS estimate of $0.40…. CSUN is currently trading at about 18x our 2009E EPS and we believe this discount to the group (26x) is warranted given the company’s limited near- and intermediate-term competitive positioning. Given its capital and raw material position, we expect shares will meaningfully under perform the group."
This traded north of $15.00 after the May IPO and in late August shares sunk as low as $5.00. By mid-October shares were in the teens again. Despite the burgeoning solar and alternative energy hype, this stock is beginning to look like one of the less promising names out there. It now needs to go by the beloved anacronym "HYPE-PO." Before today, Banc of America also had a SELL rating and Jefferies had a HOLD rating. We noted Cowen & Co. research also covered this with a cautious "Neutral" rating when the stock was above $13.00.
Jon C. Ogg
November 19, 2007
Jon Ogg produces the 24/7 Wall St. Special Situation Investing Newsletter; he does not own securities in the companies he covers.
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