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Solar Losers: LDK Solar

(LDK Solar story, updated for first quarter results date, analyst comments on LDK balance sheet)

NEW YORK ( TheStreet) -- Chinese solar company LDK Solar (LDK) announced after the close on Thursday that it was pulling a planned U.S. dollar-denominated note offering, sending shares lower, but, in reality, serving as only one more trigger for investors to consider the Chinese solar company's long-standing balance sheet issues.

"Despite the postponement of this bond offering, we still expect to generate sufficient operating cash flow to support our business plan," stated Xiaofeng Peng, Chairman and CEO of LDK Solar in the release.

LDK Solar shares fell by 8% on Friday morning.

After the market close on Thursday, LDK Solar shares had declined by 4% (on top of a 4% decline during regular trading on Thursday.) Yet for solar investors to be concerned about a 4% decline in LDK shares, or the impact of the scrapped note offering, would be mistaking mole hills for mountains. For LDK, the mountains to climb exist, but those formidable peaks hadn't changed on Thursday, or materialized because of one scrapped bond deal. Compare the after-market decline on Thursday to LDK's decline since January, from a share price of $14.50 to $8.21 at the close on Thursday. Compare the scrapped senior note offering, which would have been used to pay off short-term debt, to the existing state of LDK's balance sheet.

Paul Leming, an analyst at Soleil Securities/Princeton Tech, who has been critical of LDK's financial management for years, said after the note offering was postponed on Thursday, "Reality -- not a big deal. They've been living on bank debt for years; they'll keep living on bank debt."

However, Leming does think the LDK balance sheet should be a major focus of investors amid what has been a string of very weak solar earnings reports and second quarter outlooks. LDK itself pre-reported that it would miss its first quarter revenue by as much as $105 million - the mid-point of its guidance revision was a revenue miss of $75 million. While solar management teams are by and large reaffirming full year shipment guidance, investors don't seem to be buying it. On average, solar stocks have declined by 40% since the sector reached a collective high point in October 2010.

The most alarming solar sector earnings outlook came this week when Chinese solar module low-cost leader Trina Solar said it expected gross margins to decline in the second quarter to the range of low-20%. Trina has specific third-party wafer buying needs that are behind the gross margin decline, but analysts and investors still say that the solar industry outlook remains uncertain, and that simply going along with the solar management team's reaffirming of shipment guidance isn't good enough to remove the ref flags.

Solar companies have been reporting accounts receivable and inventory figures in the first quarter that have not been seen on solar financial statements since the first quarter of 2009, when the financial crash and Spain's decision to put a hard stop on solar installations compounded issues for the sector.

In the first quarter of 2009, LDK Solar shares had a value of $4.55. On Friday morning, Kaufman Brothers analyst Jeff Bencik, who had been at a buy with a $24 price target on LDK, lowered the stock to a hold with an $8 price target.
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