Trina Solar (TSL) is one of the leading makers of solar modules and counted among the lowest-cost players in the industry. The company produces pholtovoltaic modules that are sold to systems integrators and project developers.

We recently launched coverage for Trina Solar with a $10.25 price estimate, which values it at a 50% premium over the current market price.

Trina Solar has a geographically diverse customer base and sells modules in the U.S., Europe and other major world markets. Historically, generous subsidies in European nations have concentrated Trina Solar's sales in countries such as Germany, Italy and Spain. However, in an effort to reduce budget deficits and to make the industry more competitive, many governments in the E.U. have announced subsidy cuts, which have hurt module sales. The resulting oversupply has resulted in a sharp fall in PV module prices. We also cover players such as SunPower (SPWRA) and Suntech Power (STP).

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Cost structure, geographic diversity help

Trina Solar's diversified revenue stream helps it divide its sources of value across geographies. Its sales in Germany, the U.S. and in emerging markets (which are included in the rest of the world segment) contribute almost equally to our price estimate for the stock.

Trina Solar enjoys the following advantages in the competitive PV market:

• The company has a low cost of production because of its operations in China. It has one of the lowest costs of manufacturing for multi crystalline PV modules, which gives it a pricing advantage and helps maintain margins in a low pricing environment.
• Trina Solar's strong cash position gives it a competitive advantage in the current environment, where players are faced with high debt levels and excess inventory

Sources of value

Module sales in the U.S.: The U.S. market is expected to show robust growth in 2011 on the back of low module prices and subsidies in states such as California and New Jersey. Additionally, with the solar industry gradually inching toward grid parity, activity in the solar electricity market is expected to rise. We estimate that Trina Solar's sales in the U.S. will increase by 80% in 2011 and show moderate growth in subsequent years.

Module sales in Rest of the World: Sales in emerging markets such as China and India are forecasted to increase over the next few years as governments in these countries introduce subsidy programs to encourage clean energy.

While the solar industry as a whole has had a rough few months, we believe that Trina Solar's cost structure, geographic diversity and relatively strong balance sheet position the company well to withstand current market conditions and grow in the long term.