JinkoSolar Earnings Need to Wow Investors

JinkoSolar (JKS 0.39%) will release its quarterly report on Wednesday, and given the stock's huge run higher in recent months, investors are getting increasingly optimistic about the Chinese solar company's ability to weather the storm in the industry and become profitable. Although most don't expect JinkoSolar earnings to turn positive this quarter, the company clearly needs to move in that direction in order to support the big boom in its shares.

JinkoSolar is just one of many players in the Chinese solar industry, which has been beset by companies with terrible margins and poor pricing conditions. Yet as the situation has reached the breaking point, stronger companies in the industry could well end up benefiting if a solar shakeout eliminates some of their weaker peers and enables them to build up a stronger competitive position in the overall global solar market. Let's take an early look at what's been happening with JinkoSolar over the past quarter and what we're likely to see in its quarterly report.

Stats on JinkoSolar

Source: Yahoo! Finance.

How brightly can JinkoSolar earnings shine this quarter?
Analysts have gotten a lot more optimistic in recent months about the prospects for JinkoSolar earnings, narrowing their loss expectations by a full $1 per share for the June quarter and by 60%-75% for the 2013 and 2014 years. The stock has responded in kind, more than doubling since early May.

JinkoSolar certainly supported its investors' bullish case when it announced its first-quarter earnings in June, reporting a loss that was just over half the size that investors had expected to see. With a 36% increase in solar product shipments to almost 339 megawatts, the company managed to post an impressive double-digit percentage gross margin, up from barely break-even results in the year-ago quarter.

Since then, JinkoSolar has benefited from a number of positive developments affecting the entire industry. China announced that it would support the construction of 35 gigawatts of solar capacity in the next two years, leading analysts to conclude that the nation simply won't let its solar industry fade into insignificance. Moreover, Europe backed down from the threat of high tariffs, imposing a price floor but avoiding a big ramp-up in tariff rates that could have hurt Chinese solar companies much more. As a result, even hard-hit companies are getting optimistic about their futures. LDK Solar (NYSE: LDK) said over the weekend that it expects to return to a profit this year, based on a favorable European tariff deal that should help it bolster sales there.

But JinkoSolar is also looking to get more into solar-systems projects in an attempt to get more reliable demand. Rival Canadian Solar (CSIQ -0.94%) has successfully built up a major systems business in Canada, and JinkoSolar announced during the quarter its supply of modules for the first private solar park in India as well as a South African roof-mounted solar plant and three U.S. projects. With JinkoSolar having gotten $1 billion in loans from the China Development Bank, it should have the financing capacity to move forward full speed with such initiatives.

One interesting question is whether JinkoSolar will try to move toward smaller-scale building projects. In the U.S., SolarCity (SCTY.DL) and SunPower (SPWR -2.30%) both seen substantial early success in targeting the residential market, and although it would be harder for JinkoSolar to establish a presence in high-end residential markets like the U.S., a smart strategic partnership could help it get its foot in the door.

In the JinkoSolar earnings report, watch to see what guidance the company provides for the future. With so many potential avenues forward, the future looks much brighter for the company than it did recently, but investors still have to be cautious about the ever-changing conditions in the solar industry.

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