Does "Too Big to Fail" Extend to Solar?

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There's never a dull moment when it comes to LDK Solar (NYSE: LDK  ) . Since the quarter ended, we've seen LDK's manufacturing chief depart, a dispute erupt over more than $200 million in prepayments by Q-Cells, and a local bank step in to save the company's bacon. But we're getting ahead of ourselves. Let's go back and check out how the company fared for the third quarter.

LDK Solar's revenue clocked in at $282 million, while wafer shipments hit 320.5 megawatts. These figures both came in right around the midpoint of guidance, which was raised in late October. Gross margins bounced back to a hearty 20%, far more robust than the figures posted by single-digit midgets ReneSola (NYSE: SOL  ) and MEMC Electronic Materials (NYSE: WFR  ) for the quarter. Earnings came in at $0.27 per share, versus a big bath the previous quarter.

In its press release, the Chinese wafer slinger attributed its stronger financial results to an improvement in the solar market. The government giveaways that boosted LDK Solar's pre-tax income by 62% certainly didn't hurt. Looking forward, LDK sees growth across a wide range of end markets, driving an estimated 1.6 to 1.7 gigawatts of wafer and module shipments in 2010.

During the quarter, LDK Solar's working capital deficit (its current assets minus current liabilities) moved in the wrong direction, widening by $334 million. Net current liabilities increased to $1.35 billion at the end of September from $273 million at year-end 2008. This balance sheet is a bad boy -- not the sort you'd want to bring home to meet your folks at Thanksgiving.

Given its financial position, LDK Solar remains a speculative security. As AIG (NYSE: AIG  ) and Fannie Mae (NYSE: FNM  ) have demonstrated in other sectors, size is not to be conflated with stability. If you value a good night's sleep, this isn't the stock for you.

Fool contributor Toby Shute doesn't have a position in any company mentioned. Check out his CAPS profile or follow his articles using Twitter or RSS. The Motley Fool has a disclosure policy.

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