STP Has Strong Brand But Needs Improvement In Cost Structure
Analysts at Collins Stewart maintain their "hold" rating on Suntech Power Holding (NYSE: STP), while revising their estimates for the company.
Collins Stewart says, “STP pre-announced aspects of its 2Q10 results on 8/6, indicating that revenues will be in the range of $620-630M, gross margins in the range of 17.5-18.5%, and that its net Forex loss would be $35M.”
“With its pre-announcement, STP indicated that it would take two large non-cash charges in 2Q10. The first is a $50-55M charge to write down the amorphous thin film plant it had committed to build in CY07 and no longer appears to be viable. In addition, it will take a $106-126M write-down of its investment in and prepayment to Shunda. The combined charges will lead to a loss of $147-179M in 2Q10. Our revised forecast includes these charges and shows a $162M loss. We believe the potential for additional write-downs exists at STP in the quarters ahead,” the analysts add.
“STP continues to have a strong brand and will likely sell-out its capacity in CY11, but needs to improve its cost structure to become an attractive investment,” according to Collins Stewart.
Collins Stewart has lowered its EPS estimates for H2 from $0.42 to $0.35, while raising CY11 forecast to $0.80 from $0.66.
