STP.... the GOOD...the BAD & UGLY ????

STP the favourite of many traders is going through some GROWING PAIN.

Their Acquisition of MSK in Japan has proven to be a BIGGER PAIN than anticipated.

MSK has contracted prices which has to be HONOURED...HONOUR is a MAJOR ingredient of Japanese culture.

STP is taking a loss of 6-8% in those contracts.......but it will go a long way in getting future contracts for not walking away from a losing deal..due to rise in SILICON prices.

STP will take a loss of 6-8% on 4 MW order in this Q2 & another 6-8% loss on 3 MW in Q3.

As you can see that STP is being UPFRONT about this issue of MSK completion of outstanding contracts.

As a % of sales 4 MW is only 1% of projected close to 400MW production in Q2.....Q1 was 360MW...but it explains the margin pressure.

STP is saying that their margin will improve 1-2% in Q2 from 19.9 % in Q1.

Analyst are giving these numbers after guidance by STP for Q2:

Sales..............................$283.73
YOY..............................+121.4%
EPS................................22 cents
YOY..............................+29.4%

Q2 EPS is + 37.5% sequential growth from Q1 of 16 cents fully diluted GAAP.

So where do we go from here ???

Most analyst are happy that Margins will start to grow from Q2...and are expecting a major BOOST in margin for FY08.

Most analyst called post earning selloff....a BUYING opportunity......I do concur.

Mean target is $45..........................

I personally believe that all the bad news is discounted ALREADY...and we will slowly gain traction starting monday................

My target in short term is around $40..........where I will exit this trade.

I do like STP for long term...but until Q4...it remains a very good trading stock.

Please do your own due diligence.

I do own STP in my portfolio.

BLOG does not give buy or sell.

Saleem