The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
NEW YORK (
(TSL - Get Report)
recently disclosed in its fourth-quarter results that it posted higher-than-expected sales but a fall in gross profits.
The company managed to sell 425 megawatts of panels in the last quarter compared to to its 320 to 350 megawatts in its sales guidance but its gross margins for the quarter fell to 7.1% from 10.8% in the third quarter.
Trina had provided gross margins guidance of 10%. The fall in gross margins indicates that prices are falling faster than the company's cost-cutting efforts. Selling and administrative costs also increased by almost 30% in 2011 over the previous year and R&D costs more than doubled over the same period, pulling down our estimates for the company's performance. Other solar companies such as
also reported disappointing earnings.
We have revised
our price estimate for the stock to just under $10
,) which is more than 25% ahead of its current price.
Click for our full analysis of Trina Solar
Trina Solar's results indicate that solar panel prices were falling faster than production costs despite rising sales volumes.
Panel sales jumped in the last quarter, driven by demand from Germany and sales from growing markets such as the U.S. and China. Trina's stock was also impacted by an announcement from the German government that it would hasten cuts in subsidies and cut support by almost 30% to put checks on capacity coming online.
Germany is the world's largest market for solar panels, and further subsidy cuts could put more downward pressure on panel prices in the future. Industry executives are hoping that demand from China, the U.S. and other emerging markets can offset falling demand from European countries.
In addition to a decline in gross margins, rising indirect costs including higher R&D costs pushed down our estimate for Trina Solar. Our estimate for the company has almost fallen by 5% in light of its recent results and the possibility of stagnation in sales in Germany.
Trina Solar included a $3.3 million charge on its U.S. shipments in December on expectations expectation that the country would impose tariffs on Chinese solar imports. A group of American solar companies has pushed the U.S. Department of Commerce to impose trade penalties on solar equipment from China, accusing the companies of dumping products below production costs.