LDK Looks A-OK

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Last quarter, LDK Solar (NYSE: LDK) tightly managed investor expectations via a series of guidance updates. This time around, the solar-wafer purveyor opted to play things a bit closer to the vest. Quarterly results simply blew away even the most optimistic of analyst estimates.

Thanks largely to a sequential leap of more than 50% in wafer capacity by quarter's end, sales in the period were up 89% over the first quarter. Not only did shipments rise, but selling prices lifted about 10% as well. This is a reflection of LDK's ability to pass on a portion of the rising cost of its key raw material, polysilicon.

Silicon costs lifted fully 25% from the prior quarter, which explains why gross margin continued to shimmy south. As with Yingli Green Energy (NYSE: YGE), LDK expects tightness next quarter as well, but envisions easing in the fourth quarter. From there, internal polysilicon production begins to ramp and the margin picture looks relatively rosy.

LDK's bottom-line boost looks the most fabulous of all, but there's a large nonrecurring item in the mix. Note the line "Change in fair value of prepaid forward contracts" on the income statement. That's a one-time adjustment to a share transaction related to LDK's convertible debt offering back in April. Back out that $60 million gain and you have slightly less of an earnings bonanza. Still, it was a quality quarter.

Also notable is LDK's entry into the upgraded metallurgical grade (UMG) silicon arena. Canadian Solar (Nasdaq: CSIQ) has been turning heads with modules that use this low-cost alternative material, and suppliers like Timminco and the Dow Chemical (NYSE: DOW)/Corning (NYSE: GLW) joint venture Dow Corning are rushing to supply this new solar niche. LDK has reported testing some 100 different UMG formulations and finding only three suitable suppliers. The UMG silicon that's up to snuff is making its way into a new wafer offering that already began shipping during the quarter.

LDK sports a respectable four stars in Motley Fool CAPS. Think today's share price pop fully values the stock, or is LDK still outrageously cheap? Make your call right here.

Related Foolishness:

• Despite pesky poly costs, Yingli's got margin glee.
• This solar player's results were downright fiery.
• UMG is just one of many intriguing solar innovations.