Analyst Starts Suntech (STP) at Sell; $16 Price Target

Hapoalim Securities initiates coverage on Suntech Power Holdings (NYSE: STP) with an Underperform rating and a $16 price target. The firm says it is impressed by Suntech's cost structure, but believes that its exposure to Spain creates a large amount of risk moving into 2009.

The firm points out that Spain made up about 35% of Suntech's sales last year, and this number jumped to 44% in Q2. As demand within Spain is expected to decline by 65% next year, Hapoalim believes Suntech will be forced to offer much lower average selling prices in order to see similar demand as the prior year. Moreover, the firm believes that significant exposure to Europe (85% of last year's revs) and the Euro will have a negative impact on Suntech's selling prices as the Euro depreciates compared to the dollar.

Hapoalim feels that Suntech's guidance and the Street's estimates are being too optimistic: the company is guiding for a 10% year-over-year decline in average selling prices, while the Street is expecting sales growth of 49.7% and EPS growth of 57.9% for 2008-to-2009. Based on the current environment, Hapoalim does not see either the Street or the company's guidance as achievable. The firm is currently estimating FY08 EPS of $1.64 and FY09 EPS of $2.00, which compares to the Street's estimates of $1.64 for FY08 and $2.59 for FY09.

An analyst from Hapoalim said, "We are fully aware of the bullish argument for Suntech, supported by increased contract versus spot poly-Si sourcing, and advances in PV cell efficiency conversion, thereby allowing lower unit costs without any added expense. However, we have factored these positives into our proprietary earnings driver model, and still arrive at estimates significantly below the Street in 2009;"

With shares of Suntech trading down about 2.5% today to $24.00, Hapoalim's $16 price target represents a potential decline of about 33% from current levels.

Suntech Power Holdings Co., Ltd. designs, develops, manufactures, and markets various photovoltaic (PV) cells and modules to provide electric power for residential, commercial, industrial, and public utility applications worldwide.

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