Is LDK's Move Sustainable? (LDK, FSLR, STP, SPWRA, JASO, TAN)

LDK Solar Co., Ltd. (NYSE: LDK) is surging after this morning’s guidance.  Shares are up by double-digit percentages on higher guidance for its fourth quarter 2010 and for its fiscal year 2011.  We are tracking moves in First Solar, Inc. (NASDAQ: FSLR), Suntech Power Holdings Co. Ltd. (NYSE: STP), SunPower Corporation (NASDAQ: SPWRA) is up 7.2% at $14.41; JA Solar Holdings Co., Ltd. (NASDAQ: JASO) and even in Guggenheim Solar ETF (NYSE: TAN).

The Q4 revenue range was $870 million to $910 million with wafer shipments of 615 to 620 megawatts, module shipments of 160 to 165 MW, in-house polysilicon production of 1,900 MT and 1,910 MT, in-house cell production between 26 MW and 27 MW, and gross margin between 25.0% and 27.0%.  The prior guidance came to $710 to $750 million in revenues on wafer shipments of 580 MW to 600 MW, with gross margin between 24% and 26%.  The company also ended calendar 2010 with about $700 million in cash and pledged assets.

For the 2011 year, LDK now expects revenues of $3.5 to $3.7 billion with wafer shipments of 2.7 to 2.9 gigawatts (GW) and gross margin between 23.0% and 28.0%.  The prior 2011 guidance was $2.9 to $3.3 billion in revenues, wafer shipments of 2.5 GW to 2.8 GW, and gross margin between 22% and 28%.

Where this gets interesting is in the story of margin.  Solar margins decreased at most companies already and the trend is not expected to abate on an industry-wide basis any time soon.

When we covered our Top Solar Stocks for 2011, we noted that LDK Solar had raised manufacturing capacity to 3,000 megawatts with capacity no longer the choke point. We further noted that there is more than enough global capacity to meet demand and that “LDK, and the other Chinese companies, have so far not shown any inclination to acquire a project pipeline company, as First Solar and Sunpower have done.”

LDK shares are up over 18% at $12.37 against a 52-week trading range of $4.97 to $15.10 on about triple-average volume and that is with just under 3 hours until the market closes.  The market cap is now listed as $1.6 billion after the gains.

Many of the solar sector peers are trading higher as well, even if the tail is wagging the dog.  First Solar, Inc. (NASDAQ: FSLR) is up about 2% at $136.15; Suntech Power Holdings Co. Ltd. (NYSE: STP) is up 3.5% at $8.57; SunPower Corporation (NASDAQ: SPWRA) is up 7.2% at $14.41; JA Solar Holdings Co., Ltd. (NASDAQ: JASO); and the Guggenheim Solar ETF (NYSE: TAN) is up 1.7% at $7.59.

The sun is shining brighter on solar shares today.  Now comes the issue of pricing power and global demand as subsidies are being wound down in many cases in the developed markets.

JON C. OGG