Trina Solar Limited: Zacks #1 Rank (Strong Buy)

hursday September 18, 1:00 am ET
By Tracey Ryniec

Trina Solar's stock has declined in this rough market environment, but its fundamentals remain intact. Analysts expect 2008 year over year earnings growth of 130.63%. The stock is cheap, trading at only 6.12x forward earnings.

Company Description

Trina Solar Limited (NYSE: TSL - News) manufactures monocrystalline ingots and wafers for use in solar module production. The Chinese-based company's solar modules provide electric power for residential, commercial, industrial and other applications worldwide.

The company, a Zacks #1 Rank (Strong Buy), sells its solar modules primarily in Europe and specifically to Spain, German and Italian customers. The company currently has long-term partnerships with technology suppliers in Switzerland, Italy and Germany, which provide technology at TSL's Chinese facilities.

Trina Continues European Expansion

TSL continues to expand its market. On Sep 12, its subsidiary, Changzhou Trina Solar Energy Co. Ltd., entered into a two-year sales agreement with predetermined prices with Invictus NV, a Belgium company, expected to start in 2009.

Trina will supply Invictus with 20 MW and 30 MW for 2009 and 2010, respectively, with an option to purchase additional 10 MW during each year.

Under this two year agreement starting in 2009 with predetermined prices, Trina Solar will supply Invictus with 20 MW and 30 MW for 2009 and 2010, respectively, with an option for Invictus to purchase an additional 10 MW during each year.

Trina says it has now secured about 70% of its 2009 production target of 450 MW. 40% of that has been secured at predetermined prices.

Second Quarter Revenues Soar 171.1%

On Aug 18, Trina Solar reported second quarter earnings that missed Wall Street estimates by 3 cents. However, net income rose 25% to $17.1 million from $12.9 million. It included a one-time loss of $2 million. Earnings per share were 76 cents compared to analysts estimates of 79 cents per share.

Revenues surged 171.1% to $204.2 million from the year ago period. Total shipments grew to 47.57 MW, up from 20.33 MW in the second quarter of 2007. Average sales price ('ASP') was $4.03 in the second quarter, up from $3.95 in the first quarter of 2008 and $3.70 in the year ago quarter.

'In the second quarter we continued to demonstrate the strength of our fully integrated business model as well as our ability to efficiently expand our manufacturing capacity, technology platform, and brand awareness as we penetrate new emerging solar markets,' said Jifan Gao, Chairman and CEO.

'We are also pleased with the outcome of our recent convertible bond offering, which can provide funding for our remaining 2008 capacity expansion requirements, in addition to our long-term debt facilities under examination,' he said.

Consensus Estimates Rise for the Third Quarter and the Full Year

Covering analysts responded to the growth in the second quarter by raising estimates. Third quarter estimates moved up 10 cents to $1.08 from 98 cents in the last 30 days. For the full year, estimates jumped 15 cents to $3.37 from $3.22 during that same period.

Value Fundamentals

Trina Solar's forward P/E is only 6.12. Its price-to-book is 1.56. The company has a solid one year return on equity (ROE) of 14.61%.