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Axiom Capital: Chinese Solar Sector 'Ripe' For Shorting

John Seward

Chinese solar power equipment makers are at risk of missing Wall Street expectations and an analyst recommended shorting a half-dozen companies in the sector Thursday.

U.S. tariffs on Chinese solar products, an oversupplied market as well as currency headwinds will all conspire to produce "a sea of earnings misses" in the group, according to Axiom Capital's Gordon L. Johnson.

"Consensus is in for a rude awaking when the earnings for this group start to come in next week," Johnson said.

Given what Johnson characterized as "an acute rally" in the sector recently, "we see a ripe opportunity on the short side right now."

The analyst recommended that investors take short positions in Trina Solar Limited (ADR) (NYSE: TSL), Yingli Green Energy Hold. Co. Ltd. (NYSE: YGE), JA Solar Holdings Co., ltd. (NASDAQ: JASO) and JinkoSolar Holding Co., Ltd. (NYSE: JKS), as well as in Neo Solar Power Corp., which trades on the Toronto exchange.

Johnson also suggested shorting Canadian Solar Inc. (NASDAQ: CSIQ) following its earnings report slated for March 5.

The analyst said "grandiose projections" of demand emerging from projects in China, India and Japan may fail to materialize.

Johnson added that effects of a trade case, decided in June 2014, that imposed U.S. tariffs of 22 percent to 29 percent on Chinese solar power products, hasn't been included in consensus estimates and will only be seen starting with results from the 2014 fourth quarter.

The analyst downgraded JA Solar to Sell and cut his target by a third to $6. The Shanghai company is slated to post results March 12.

Johnson also reiterated a Sell rating on Trina, and lowered his target more than 37 percent to $5. Trina plans to release earnings March 4.

Johnson slashed his target on Yingli 30 percent to $1.40 a share, maintaining a Sell rating and saying "the insolvency risk appears elevated." Yingli hasn't offered a release date on its Web site.

Neo Solar got its target cut by nearly 5 percent to $20 by Johnson, who didn't offer a rating, but said there is "outside risk" to the company maintaining profits in the face of U.S. trade sanctions. The company posted unaudited 2014 results earlier this month.

Latest Ratings for TSL

Date Firm Action From To
Jan 2015 RBC Capital Upgrades Sector Perform Outperform
Jan 2015 Deutsche Bank Maintains Buy
Aug 2014 Goldman Sachs Initiates Coverage on Neutral

View More Analyst Ratings for TSL
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