Credit Suisse downgraded Chinese solar energy company JinkoSolar (JKS) to Neutral from Outperform, but that company and others in the sector are advancing after another name in the space, JA Solar (JASO), reported much better than expected results.
DOWNGRADE: JinkoSolar is likely to be hurt by an oversupply of solar energy products in 2018 and beyond, and the stock does not yet reflect this headwind, wrote Credit Suisse analyst Maheep Mandloi. Moreover, investors have become “too exuberant” about increased demand for the company’s products, the analyst stated. However, Mandloi increased the firm’s earnings per share estimates for the company significantly above consensus estimates. The analyst predicts that JinkoSolar’s 2017 and 2018 EPS will come in at $2.30 and $3.56, respectively, versus the consensus outlooks of $1.51 and $2.75. The analyst cited increased demand for the company’s higher cost, more efficient products as the key reason for the increase in the estimates. Mandloi raised the price target on the shares to $25 from $20.
RESULTS: JA Solar reported second quarter earnings per share of 42c, versus two analysts’ average estimate of 3c. The company’s revenue came in at $878M ,versus the analysts’ average estimate of $602.5M. JA Solar said its results were boosted by strong sales in China, which were primarily brought about by “accelerated activity ahead of subsidy reductions.” The company reported that shipments of its products to its customers surged 88% year-over-year last quarter. However, JA Solar CEO Baofang Jin said the company remains “cautious on our business outlook as we enter the second half of 2017, given the slowdown in demand in our domestic market, coupled with the uncertainty around the Section 201 trade case in the U.S.”
PRICE ACTION: In morning trading while JinkoSolar rose 2% to $24.15, while JA Solar advanced 3% to $6.38. Canadian Solar (CSIQ), which also has a large China business, climbed about 1% to $15.12 per share.