Raised Guidance Highlights Suntech Value (STP, TAN)

Suntech Power Holdings Co., Ltd. (NYSE: STP) may be down by more than half from its 52-week highs, but that is not going to keep it from seeing a rather large gain this morning.  Shares are higher after the solar giant gave updated guidance on earnings and on its joint venture to expand 1.2 gigawatt PV cell capacity.  The company updated financial guidance for fiscal year 2010 and expectations for 2011.

At its 2010 Investor and Analyst Day this morning in New York, the expects to ship more than 1,500 megawatts of solar products and generate revenues of $2.78 billion to $2.83 billion for 2010.  That is shown as at least 64% revenue growth, and Thomson Reuters has estimates of $2.74 billion.

On other issues, Suntech sees its consolidated gross margin for the full year 2010 of about 17%, with operating margin of about 6.5%.

Suntech also expects to reach 1.8GW of installed cell and module production capacity and 500MW of installed wafer capacity by the end of 2010, with full-year cap-ex of about $350 million.

For the fiscal year ending December 31, 2011, Suntech expects to ship at least 2.2GW of solar products and generate revenues of $3.4 billion to $3.6 billion.  Thomson Reuters has estimates of $3.02 billion, so the company is adding on to expectations for 2011.  Consolidated gross margin for 2011 is expected to be about 20% to 22% and operating margin is expected to be in the range of 12% to 14%.

Full year 2011 earnings per ADS is expected to be in the range of $1.40 to $1.60 EPS, excluding any earnings related to the increase in fair value of Global Solar Fund’s (GSF) investments in projects.  Thomson Reuters only has estimates of $0.89 EPS for 2011.  Keep in mind that the guidance is based upon $1.33 Dollar/Euro conversion rates.  At $8.75, that is a dirt cheap multiple if investors will treat it ion an apples to apples comparison and if the currency changes do not influence the guidance too much.

Suntech has also announced today it will form a joint venture with Wuxi Industrial Development Group and Wuxi New District E&D Group to own and operate a 1.2GW PV cell production facility located at the heart of Suntech’s Wuxi campus.  As far as who gets what, Suntech will own 40% of the JV and will contribute approximately $60 million towards the equity investment. 600MW of the PV cell capacity is expected to be completed by mid-2011. The remaining 600MW will be ramped in 2011 or 2012 depending on the demand outlook.

With less than ten minutes to the market open, Suntech shares are up 5.9% at $8.77 on more than 75,000 shares and the 52-week trading range is $7.05 to $18.78.

The gain of Suntech is so far not affecting share prices in Guggenheim Solar ETF (NYSE: TAN); its shares are actually indicated down $0.02 at $7.35 after a $7.37 close on Friday.

Noted from the release:

• Suntech expects to achieve 2.4GW of installed cell and module production capacity by the end of 2011, of which 600MW of PV cell capacity will be owned and operated by the joint venture. Suntech expects to achieve 1.2GW of installed wafer capacity by the end of 2011. Full year 2011 capital expenditures are expected to be in the range of $250 million to $270 million.
• GSF is in the process of constructing 140MW of projects, of which at least 80MW are expected to be completed in the fourth quarter of 2010 and the remainder will be completed in 2011. As a result, Suntech expects that the fair value of those projects will increase significantly and Suntech will recognize a related gain in earnings of affiliates in the fourth quarter of 2010 and in 2011. As the economics and timing of completion of each of these projects is different it is difficult to provide an accurate estimation of the gains at this time.

JON C. OGG