Daqo New Energy: Zacks’Bull of the Day Play

Energy has been front and center for investors over the past several months as oil prices gyrate up and down like two kids on a teeter totter playset.  At the same time ordinary citizens and governments are moving to renewable energy sources like solar power.  This shift in energy policy has brought several wind and solar companies into the forefront.  One such company, is a leading manufacturer of high-quality polysilicon (initial building block the process of manufacturing silicon based Solar Photovoltaic devices), who has seen revenues rise while decreasing costs.  This company, Daqo New Energy (DQSnapshot Report), is the Zacks Bull of the Day.

This Zacks Rank #1 (Strong Buy) is engaged in the manufacture and sale of high-quality polysilicon to photovoltaic product manufacturers. The polysilicon is further processed into ingots, wafers, cells and modules for solar power solutions. Daqo New Energy Corp., formerly known as Mega Stand International Limited, is headquartered in Wanzhou, The People’s Republic of China.

In their most recent earnings report the company saw quarter over quarter growth in Polysilicon production (+31.9%), Polysilicon external sales volume (+35.8%), Solar wafer sales volume (+9.9%), Revenues (+27.3%), Non-GAAP gross margin (+23.4%), EBITDA (+56.3%), Income from operations (+113.4%), Net Income (+209%), and Adjusted Net Income (88.9%).  Further, management was also able to decrease costs during the quarter as well, with Polysilicon average total production cost (down -12.7%), and Polysilicon average cash cost (down 11.7%).

According to Dr. Gongda Yao, CEO, “In the fourth quarter of 2015, we delivered strong operating and financial results that were beyond our internal expectations. Our polysilicon facilities were running successfully at full capacity for the entire quarter, and we are excited to report that both our external sales volume and cost structure exceeded our prior guidance. We achieved record-high quarterly polysilicon production volume of 3,547 MT, an increase of 31.9% from 2,689 MT in the third quarter of 2015 and 12% above our name plate capacity. Thanks to our technology and operations team, we made solid progress on our cost reduction efforts, and reduced our polysilicon average total production cost and cash cost even further to $9.74/kg and $7.69/kg, respectively, which is our lowest-ever cost and ahead of our cost reduction roadmap.”

As you can see from the Price and Consensus graph below, estimates and stock price are expected to continue to rise through 2016.

Increasing Estimates

Over the past 30 days estimates for Q1 16 Q2 16, FY 16 and FY 17;  Q1 16 improved from $0.40 to $0.91, Q2 rose from $0.46 to $1.01, FY 16 jumped up from $1.88 to $3.70, and FY 17 vaulted up from $3.33 to $4.50.

Bottom Line

The combination of management’s cost containment strategy, increased demand, and an improvement in polysilicon ASP (average selling price) has resulted increases in net income, EPS, and margins for the company.  Further, according to management, “the industry and our customers continue to add on additional wafer capacities through 2016, we anticipate continued strong demand for polysilicon.”

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