Jinko Solar Shares Catch A New Sell Rating: 3 Sizable Risks To Consider

Despite trading up 75 percent year to date, JinkoSolar Holding Co., Ltd. JKS suffers enduring analyst skepticism.

Axiom’s Gordon Johnson initiated coverage with a Sell rating and $10 price target Thursday, adding to the Street’s two Holds, two Sells and $18.60 average target. The stock now trades at $26.60.

“We see JKS’ earnings hanging from a cliff, imminently set to ‘lose its grip,’” Johnson wrote in a morning note.

What’s Going Wrong?

By his assessment, Jinko Solar is “‘the’ solar market short play,” and bullish traders are ignoring three significant risks that could “massacre” near-term earnings through 2018.

For one, Axiom expects a collapse in the 22-percent premium for solar modules in China’s Top-Runner program. With equal cost per watt between Passivated Emitter and Rear Cell and non-PERC technology, an anticipated excess in supply could drive down mono-PERC prices to equate non-PERC costs.

At the same time, inorganic demand should diminish as Chinese module companies are prohibited from selling to themselves through downstream utility projects. The limitation could yield a decrease in margins.

Finally, Tier 1 vendor demand is expected to drop in China in 2018 ━ an unprecedented movement “implying even greater global structural oversupply.”

“Thus, with price declines slated to outpace cost downs for some time, we see JKS’ EPS turning negative in 3Q17 and staying negative all the way through 2019,” Johnson wrote. “Caveat emptor.”

Related Links:

Gordon Johnson, Noted Solar Bear, Upgrades First Solar To Buy

2 Solar Companies That Could Disappoint During The Second Half Of 2017