Trina Solar Cuts Q1 Shipment Outlook, Shares Fall - Analyst Blog

Shares of Trina Solar Limited TSL dropped about 6% on Monday, April 14, as the company lowered its projection for solar module shipments for the first quarter of 2014. The lower expectation stemmed from hitches in shipments to the European Union.

Trina Solar now expects to ship 540–570 megawatts MW worth of panels in the first quarter, which is down sharply from its previous forecast of 670–700 MW. The revised guidance includes 20–30 MW of panels shipped for its downstream projects.

Nevertheless, the reduced expectation is temporary and Trina Solar expects shipments to European markets to increase as settlements between the countries are finalized. Again, demand in some European countries also remains strong for Trina Solar to capitalize on. The company also reaffirmed its full year 2014 shipment expectation of 3.6 gigawatt (GW) GW to 3.8 GW.

Even though Trina Solar cut its shipment expectation for the first quarter, it raised the gross margin guidance to a range of 18% to 20%, from the mid-teens expectation earlier. The improved outlook is backed by better module average sales prices and a higher gross margin from the sale of a 50 MW project in Wuwei, China.

Another panel maker, Yingli Green Energy Holding Co. Ltd.'s YGE shares were also down 6.5% on Friday, April 11, after it warned of lower-than-expected shipments due to soft seasonal demand in China and a project delay in Algeria. In a ripple effect, shares of ReneSola Ltd. SOL and Canadian Solar Inc. CSIQ were hit by 4.3% and 6.3% yesterday, respectively.

The solar market boomed in China in 2013, overtaking longtime leader Germany. One of the world's largest solar power companies, Canadian Solar, swung into profit in 2013 as against the loss incurred in 2012, buoyed by an increase in shipment volume and higher revenues.

Despite the lukewarm solar module shipment forecasts for the first quarter, alternative energy is the most happening thing in the energy sector now in the wake of widespread concerns over carbon emission, climate change and other pressing environmental issues.

With rapid uptake of renewable energy and growing awareness regarding its benefits, the utility providers are gradually shifting their mode of power generation to solar, wind and water from traditional methods. This bodes well for solar companies, which are continuously diversifying their customer base geographically, across the North American and European markets, as well as the emerging markets of South Korea, Japan and China.

On a more heartening note, JA Solar Holdings Co.'s JASO shares were up 7.8% yesterday on its first-quarter shipment announcement. It now expects first-quarter shipments to exceed 620 MW, above the high end of its prior guidance of 580 MW to 610 MW. JA Solar reiterated its full-year shipment target of 2.7 GW to 2.9 GW.

Though Trina Solar and Yingli have cut their first quarter shipment outlook, rising Asian demand, China in particular, has helped the industry's main players (including Trina Solar) to maintain steady margins. China reportedly increased the 2014 target for new solar PV capacity installations to 14 GW from its previous forecast of 12 GW. If that's so, the country is expected to account for a sizeable share of Trina Solar's total shipments this year.

Trina Solar carries a Zacks Rank #2 (Buy). Some better-ranked stocks in the same industry include Canadian Solar and ReneSola, both sporting a Zacks Rank #1 (Strong Buy).