Last I checked, there were over 300 NYSE-listed stocks hitting 52-week lows today. Same stuff, different day, right? Still, I can't help but notice the preponderance of firms hitting all-time lows these days. And I'm not even talking about the walking dead like Bank of America (NYSE:BAC) and Citigroup (NYSE:C).
Take LDK Solar (NYSE:LDK), for example. The Chinese solar wafer supplier has been publicly traded for less than two years, so today's all-time low isn't too dramatic in the grand scheme of things, I suppose. But I honestly never thought I'd see this stock, which peaked at around $75 in September of 2007, trading for $6 and change. At least not once those fraud allegations got cleared up, that is.
Why the 25% haircut today? LDK is taking a huge writedown on its inventories, the value of which has plummeted along with plunging polysilicon and wafer prices since the solar market froze up in the fall. This charge, which will top $200 million, will cause the firm to report a loss for the fourth quarter. There was also a raft of guidance cuts, so let's put the latest information side by side with the numbers that LDK provided in early January:
|
Old Guidance |
New Guidance | |
|---|---|---|
|
2008 fourth-quarter revenue |
$425 to $435 million |
$415 to $425 million |
|
2008 fourth-quarter gross margin |
10% to 13% |
negative |
|
2009 revenue |
$2.3 to $2.5 billion |
not provided |
|
2009 year-end wafer capacity |
2.3 gigawatts |
2 gigawatts |
|
2009 year-end poly capacity |
16,000 tons |
12,000 tons |
Data from company press releases.
In addition to the inventory hit, which threw margins into the red, LDK has also slowed its various expansion plans. As described in the press release, they're being delayed rather than put on hold. This is a sound decision, and is quite modest compared to Suntech Power's (NYSE:STP). I have to believe that people are primarily panicking about the inventory charge.
The tables have certainly turned, here. Whereas the cell and module makers were the ones getting squeezed when polysilicon prices were hurtling skyward, wafer players LDK and ReneSola (NYSE:SOL) are now feeling the heat. I don't personally find this capital-intensive operation a compelling investment, but given the non-cash nature of the inventory charge, I can't really see how LDK's business is 25% less valuable than it was yesterday.
I can only surmise that LDK's integrity is once again being called into question by investors. If anyone is calling shenanigans on LDK's inventory accounting, however, word has yet to reach my ears -- or inbox. And I do usually hear from the company's detractors.
Now who's getting drilled?
Changing gears a bit, let's turn to a land driller getting no love. Earlier this month, I suggested that people picking up shares of drillers like Precision Drilling Trust (NYSE:PDS) or Helmerich & Paynes (NYSE:HP) were likely to get burned in the near term. That's turned out to be horribly prescient in the case of the former company.
The shares of this well-heeled contract driller have collapsed from what seemed like already depressed levels to $2 and change. Precision has been attempting to shore up its balance sheet by various means, from dashing its dividend to raising fresh capital. Mr. Market has been most unimpressed. Somehow, Precision managed to place new units at $3.75 yesterday. The proposed debt issuance, however, has stalled. That leaves Precision stuck with a bridge loan charging 17% interest.
Is Precision perilously close to defaulting on its obligations? The market price suggests an affirmative answer, but the real pressure doesn't hit until the very end of 2009, when debt maturities begin to surface. That suggests to me that Precision has time to maneuver its way through this funding crunch. But I'm just one guy, and the market has spoken. Unless you have some unique insight into the situation here, I would probably suggest standing aside.
