JA Solar Holdings Shares Lower Despite Beat & Raise Quarter

JA Solar JASO reported a beat and raise quarter. Demand/pricing are strong and the new OEM module business is ramping from a small base. Wells Fargo believes cell vendors are more at risk from declining subsidies and weather driven seasonality entering 2011 and remain cautious on shares. Valuation keeps Wells Fargo at Market Perform; shares are trading at 8X 2011 EPS estimate, which factors in a slowdown entering next year. Revenue of $541MM was up 52% qtr/qtr and well ahead of consensus of $453.8M. Gross margin of 22.5%, was above guidance of 20% and operating expenses held fairly tight despite the big revenue upside. Pro forma EPS of $0.47 was also ahead of the Street at $0.34. Upside driven by strong demand/pricing and product mix. Unit shipments increased ~34% sequentially and we estimate pricing improved low single digit across product segments. Greater contribution of OEM modules and lower mix of tolling also drove higher revenue. JASO is trading lower at $8.89