JA Solar Earnings Should Look a Little Less Ugly

JA Solar (NASDAQ: JASO  ) will release its quarterly report on Thursday, and despite some encouraging news in recent months that has sent the stock higher, the company is expected to lose a substantial amount of money for the foreseeable future. Will the JA Solar earnings report make investors feel more comfortable about the future of the Chinese solar industry or merely reinforce long-held concerns about overcapacity from too many competitors?

Judging from the stock's roller-coaster performance over the past quarter, investors aren't sure what to believe about JA Solar's future. Yet with so many of its peers already having reported their earnings, we can get some hints as to what trends are likely to drive the company's financial results this quarter as well as its future prospects. Let's take an early look at what's been happening with JA Solar over the past quarter and what we're likely to see in its report.

Stats on JA Solar

Analyst EPS Estimate

($0.54)

Year-Ago EPS

($1.85)

Revenue Estimate

$250.42 million

Change From Year-Ago Revenue

(11.9%)

Earnings Beats in Past Four Quarters

1

Source: Yahoo! Finance.

What's up with JA Solar earnings?
In recent months, analysts have gotten quite a bit more optimistic about JA Solar's long-term prospects. They've held steady on their June-quarter estimates, but they've narrowed their full-year 2013 loss projections almost by half and also trimmed their expectations for 2014's loss as well. The stock has been up and down but eked out a 5% gain since late May.

JA Solar started the quarter off well, reporting a first-quarter earnings surprise that sent the stock soaring 70% in a single day. Even though the company reported a net loss, it was less than most had expected to see. JA Solar was also able to pay off nearly $120 million in convertible debt in May, avoiding the defaults that rivals Suntech and LDK Solar (NASDAQOTH: LDKYQ  ) had earlier this year.

Yet what really moved solar stocks in both directions during the quarter was the looming trade war between China and Europe. In June, JA Solar and its peers took big hits as Europe imposed an 11.8% tariff on Chinese solar products, with threats to boost the tariff to between three and six times that level by this month. In the end, though, Europe and China agreed to a price floor for solar modules, avoiding the larger tariff and putting an end to the dispute at least in the short run.

More recently, earnings reports from competitors have pushed JA Solar's stock in both directions. Last week's positive news from Trina Solar (NYSE: TSL  ) featured rising module prices and substantial shipment growth, and more favorable conditions could make the company profitable by the end of this year. Yet today's report from LDK Solar showed that it continues to face substantial losses, and a drop in available cash by more than half raised further concerns about its financial stability going forward. JA Solar has almost $450 million in debt net of cash on its balance sheet and faces some similar balance-sheet issues as many of its peers.

In the JA Solar earnings report, watch for the company to discuss the source of its sales and which regions are performing the best. In particular, with China having boosted its commitment to solar with a 35-gigawatt solar installation initiative by 2015, JA Solar needs to stake its claim to the domestic boondoggle to make sure it can take maximum advantage while the Chinese government's support lasts.

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