XINYU City, China (
disappointed in its earnings release on Tuesday morning. The backward-looking earnings shortfall, though, was less significant than a set of questions that dogged LDK Solar long before Tuesday, and that seemingly linger after the give-and-take between LDK management and analysts on the Tuesday conference call.
LDK shares ended down 7.8% on Tuesday, on close to triple the Chinese solar company's average trading volume -- 6.5 million shares traded versus 2.5 million shares.
It's possible that, given the general outperformance by many solar stocks in the fourth quarter, investors might have had unrealistic expectations for LDK. LDK gross margins were 9.9% in the fourth quarter -- half the third-quarter gross margin level of 20.1%.
Nevertheless, to put the weak fourth quarter into perspective, Gabelli & Co. analyst Hendi Susanto said he actually expected the gross margins reported by LDK to be worse than the actual margin deterioration.
(SOL - Get Report)
LDK's closest competitor among publicly traded Chinese wafer makers, also reported lower than expect margins
in the fourth quarter.
ReneSola dipped beneath the $5 share-price mark in the week after its earnings disappointment, but its shares have benefited in the recent solar rally, back up to $5.92 at the close on Tuesday.
ReneSola benefited specifically from a price target hike
from $5 to $7 issued by Barclays Capital on Monday.
LDK's debt-laden balance sheet and its strategic initiative to move polysilicon production in-house are more of an overhang on LDK Solar shares. LDK is still working through a historical inventory of polysilicon that is significantly more expensive than polysilicon prices in the spot market -- $70/kg for LDK versus spot poly prices that some analysts expect will hit $45 this year.
What's more, LDK indicated on the call that it will need more financing and continues to work with Chinese banks to transition short-term debt to long-term debt. LDK had more than $69 million in short-term debt at the end of the fourth-quarter.
The Street was looking for more clarity from LDK as the Chinese solar company's management set a target of 15% to 16% gross margins in 2010.