Roth Capital Encouraged by ReneSola's (SOL) Progress, but Sustainable Profits Need to be Demonstrated

Roth Capital maintains its Neutral rating and $2.75 price target on ReneSola (NYSE: SOL) following Q2 results issued Tuesday.

Analyst Philip Shen offered the following commentary: We believe SOL's stock may be challenged in the near term given the company's weak Q3 shipment guidance and the lack of a 2014 outlook. Management de-emphasized volumes and is instead focusing on higher margin revenues. While this is laudable, the lack of 2014 shipment guidance, in our view, was a negative. Relative to peers, SOL is pursuing a unique strategy of de-emphasizing upstream capacity and focusing on OEM partnerships and global DG markets. We think there is merit to this strategy: (1) The company has established a network of OEM partners (1.1GW of module assembly capacity growing to 1.5GW by mid-2015) throughout the world to manage the ever-changing tariff landscape; (2) The diversified module assembly base is based on partnerships with local companies and nearly eliminates SOL’s capex requirements; and (3) In contrast to typical Chinese companies, where China serves as the manufacturing base and international brands are enhanced, SOL is turning this model on its head by using an international manufacturing footprint (i.e. outside of China) and promoting its Chinese ReneSola brand. Over time, with the focus on smaller DG markets, we believe SOL has the potential of establishing a reputed brand in a number of developing solar markets that may be small today, but meaningful in size in the years ahead. We note that SOL may even bring to bear its other upstream manufacturing expertise and help local OEM companies establish additional types of manufacturing capacity, such as cell. Risks to the strategy include lack of control over capacity, OEM partners moving away from SOL, higher inventory, etc. All in, we are encouraged by SOL’s progress, but remain Neutral until SOL demonstrates sustainable profits from its DG/partnership strategy.

For an analyst ratings summary and ratings history on ReneSola Ltd. click here. For more ratings news on ReneSola Ltd. click here.

ReneSola Ltd. closed at $2.60 yesterday.

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