LDK Solar (NYSE:LDK) Raises Guidance - And So Do We

Aug 25, 2008
Author: SCP Editor

August 25, 2008 – After raising guidance this morning for FY 2009 revenue, and announcing that it has reached its 2008 shipment goals ahead of schedule, LDK Solar (NYSE:LDK) is moving higher in pre-market activity and will likely open in the $49 range, up 58% since we recommended it back on April 24. Our target that we set for the stock to trade in this year was between $47 and $64, and which was based on multiples of 6.2x P/S and 25.33x P/E on a baseline revenue assumption of $1.1 billion and earnings of $198 million. Since then, the company blew away expectations for its last reported quarter, as well. We are adjusting our expectations upward this morning.

Management said that it expects 2009 revenue in a range of $2.8 to $3 billion, with shipments between 1.45GW and 1.55GW for the next year. This guidance gives us a some assurance that our targets can be raised.  

At $49, the stock is trading at 5.08x P/S (ttm), and 17.98 P/E (ttm). We think both of these numbers are conservative, and looking ahead to our expectations for 2008, which we also raised based on management’s guidance to $1.7 billion topline revenue and earnings of $306 million. At 5x our 2008 sales target we arrive at an implied market cap of $8.5 billion, which would translate into a stock price of $79. At 3x our 2009 sales target of $2.9 billion, we arrive at an implied market cap of $8.7 billion, which would translated into a stock price of $81.

At 25x our 2008 income target of $306 million, we arrive at an implied market cap of $7.6 billion, or a stock price of $71 and at 14x our 2009 income target of $580 we arrive at an implied market cap of $8.1 billion, or a stock price of $76.

All of this being said, we are basing our net income margin expectations for 2008 and 2009 on 18% and 20%, respectively, substantially lower than the 25% to 30% net margins which the company was reporting back in 2007. We have noted previously, that one of the reasons the stock had previously been under pressure was because the company, like everyone else in the sector, was dealing with the rising costs of raw materials and polysilicon. But LDK has been aggressive about addressing margin issues and it will certainly be a benefactor of the cost efficiencies realized when it comes into full production for its plant and becomes more vertically integrated.

Based on all of this, we are raising our target trading range for the stock to $64 to $71 over the next 12 months, which represents a further 30% to 44% upside from this morning’s $49 price, and a full 106% to 129% upside from our April 24 initiation price of $31. For previous commentary on LDK:

August 12, 2008

June 30, 2008

April 24, 2008  

Disclosure Note: SCPEditor is LONG LDK.


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