Auriga Maintains Buy On Yingli (YGE) Ahead Of Earnings

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11:04:53 am on February 16, 2011

Auriga is out reiterating its Buy rating and $17 price target on Yingli Green Energy (YGE) ahead of its earnings report Friday morning.  Here are highlights of the notes..

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· Stock price does not reflect cash flow implied by 2011 estimates. The stock has risen enough to account for stronger than expected Italian demand.

· Margins better than guided in 4Q, but still decline into 2011. Better pricing in 4Q should lead to better than guided gross margin. Combined with subdued cost pressure, we see 4Q10 gross margin guidance of 29%-30% as too low — but Consensus is already there at 31%. We expect this trend to continue into 2011, but our bearish module price estimates decline faster than costs even as we slightly increase 1H11 module price estimates. Our 2011 gross margin estimate of 27% remains below Consensus’ 28.7%.

· Units in 1H11 better than expected. We raise our 1H11 estimates slightly to account for better than expected volume, leading to better pricing, and increase our 2011 EPS estimate to $1.48, in-line with Consensus. Strength from the Italian and German markets drives this increase; while we expect 2H11 sales to be higher than 1H11 sales even after the mid-year incentive decline, we await additional color on YGE’s capacity and sales channel before adjusting 2H11 sales and margin estimates.

In my opinion, the action in shares of YGE over the past few days indicate traders are anticipating strong earnings out of Yingli and  that the stock could pull back “on the news”.  We shall see, but shares are up four days in a row, rocketing off support of the 200 day moving average.

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