Roth Capital Affirms Daqo New Energy (DQ) at 'Buy'; Lower Costs to Drive Results
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Roth Capital affirms Daqo New Energy (NYSE: DQ) at Buy with a price target of $35 following mixed Q3 results reported earlier Tuesday.
The firm offered the following overall thoughts:
While the overall macro picture for solar is challenged, DQ represents a calm in the storm. With China's protectionist poly tariff restricting U.S. polysilicon imports (put in place in response to the U.S.'s module import tariff), poly supply remains more constrained than it otherwise would be, resulting in resilient polysilicon ASPs. Combine that with arguably the world's leading polysilicon production cost structure in DQ, and you get a company that will likely generate attractive CFs and earnings power in 2017. We are taking up our 2017 EPS to $4.74/share from ~$4 given its much better-than-expected cost structure improvements in Q3 and expectations in 2017 of <$8.50/kg vs. the company's prior outlook of $9-9.50/kg. For perspective, when DQ reaches poly capacity of 18kMT each $1/kg improvement in ASPs or cost structure, represents $18mn that falls to the bottom line, equivalent to ~$1.70/share of earnings power. What does the company do with all this cash? Sometime next year, management will decide on whether or not it will expand its capacity by 7k MT to a total of 25k MT, or potentially pay down debt (Q3 net debt was $262mn).
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