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Bear of the Day: JinkoSolar Holdings (JKS)

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Jinko Solar Holdings (JKS - Free Report) who currently holds a Zacks Rank #5 (Strong Sell) is a solar product manufacturer with operations based in Jiangxi Province and Zhejiang Province in China. JinkoSolar has built a vertically integrated solar product value chain from recovered silicon materials to solar modules. JinkoSolar's principal products are silicon wafers, solar cells and solar modules which are all along the photovoltaic value chain, with a global network spanning across Europe, North America and Asia.

Recent Earnings Results

In early September, JKS reported Q2 earnings where they significantly missed the Zacks consensus earnings estimate ($0.20 actual vs. $0.69 expected), but did beat the Zacks consensus revenue estimate.  

Factors for the Decline

While the company posted strong revenue growth (+37.2% sequentially) in their Q2 17 earnings report, issues of increased supply chain pricing negatively impacting their cost structure.  Further, these costs look like they are going to continue to increase into 2018.  Lastly, the increased pricing coupled with more shipments from lower margin products caused gross margins to come in below expectations.  

Management’s Take

According to Mr. Kangping Chen, CEO, “Shipments over the past few quarters have surged to new highs, allowing us to continuously capitalize on the growing recognition of JinkoSolar's brand and excellent products and services to increase our market share. While ASPs declined during the quarter, prices along our supply chain remained relatively high and impacting our margins. We also worked with our OEM partners more extensively than expected during the quarter to ensure timely delivery, which adversely impacted our margins. We are currently reviewing our strategy in order to improve profitability and further cut down the use of OEM going forward. Our efforts will also be focused on strengthening inventory management and controlling operating expenses.”

Price and Earnings Consensus Graph

As you can see in the graph below the stock price had a nice run, but higher than expected supply chain pricing, and lower gross margins have caused the stock price to recede and for future earnings estimates to decline as of late.

JinkoSolar Holding Company Limited Price and Consensus

JinkoSolar Holding Company Limited Price and Consensus | JinkoSolar Holding Company Limited Quote

Decreasing Future Earnings Estimates

Due to the headwinds facing the company in the second half of their fiscal year, earnings estimates for Q3 17, Q4 17, FY 17 and FY 18 earnings estimates have declined over the past 30days; Q3 17 dropped from $0.41 to $0.17, Q4 17 plummeted from $0.63 to $0.12, FY 17 fell from $1.99 to $0.77, and FY 18 was more than cut in half from $2.20 to $0.99.

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