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What to Expect from Trina Solar’s Future Earnings

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Aug. 29 2016, Updated 7:04 a.m. ET

Trina Solar’s 2016 guidance

Trina Solar’s (TSL) shipments include the sale of its solar (TAN) modules to the company’s solar projects and external shipments. However, TSL doesn’t recognize revenue from the modules shipped to the company’s downstream solar power projects. The company expects to ship 30–50 MW (megawatts) of solar modules to its downstream solar power projects in 3Q16. For 2016, the company expects to ship around 220–260 MW of modules to its downstream business in 2016.

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For 3Q16, Trina Solar expects its external shipments to be in the range of ~1.5–1.6 GW (gigawatts). Moreover, the company retained its 2016 external shipment guidance of ~6.0–6.3 GW. Also, TSL retained its total shipment guidance and downstream PV (photovoltaic) project connection guidance after 2Q16.

According to the company’s filings, TSL doesn’t expect grid connection of its downstream PV projects in 3Q16.

Analysts’ expectations

Analysts anticipate a decrease in gross profit and gross margin for Trina Solar. For the coming quarter, analysts anticipate that the company will report about $145 million in gross profit, which would be a ~18% decrease on a quarter-over-quarter basis. Also, analysts expect the company’s gross margin will be around 15.6%, compared to 18.3% in 2Q16.

Outlook

Trina Solar had an impressive 2Q16, driven by high module shipments and a high gross margin. However, its gross margin is expected to decline due to an anticipated decrease in the average selling price of modules in 2H16.

In the short term, it’s important for Trina Solar to execute its vertical integration strategy and diversify its customer base across operating geographies. In the long term, natural gas prices, residential electricity rates of traditional utilities, regulatory changes, and environmental regulations will determine the growth of solar players such as First Solar (FSLR), Yingli Solar (YGE), SunPower (SPWR), Trina Solar, and Canadian Solar (CSIQ).

In the final part of this series, we’ll compare Trina Solar to its peers based on valuation.

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