Tuesday, June 12, 2007

MEMC Electronic (NYSE:WFR): CIBC maintains WFR as their top pick

- CIBC comments on MEMC Electronic (NYSE:WFR) saying that after hosting an investor dinner with WFR's CEO and CFO on 6/11, they feel confident that the company is on track to meet their 2Q revenue and EPS estimates of $466M and $0.76. The semi market remains soft, so the firm does not expect much top-line upside, but mix to 300mm and solar could boost EPS.

While several semiconductor customers have indicated that fundamentals are beginning to improve (quarterly comps improving from depressed levels), 2Q will likely only be a period of inventory digestion and will translate to higher unit shipments for WFR in the September quarter.

Mgmt appears more confident regarding the ramp of wafer shipments to key PV customers and believes that 1Q production and delivery delays have been alleviated. While solar wafers have lower rev. potential than semi wafers, CIBC believes GM is 60-65%, which is higher than the corporate avg. They believe that many investors do not appreciate the high level of profitability on solar wafers and instead assume that the margin profile is similar to the ~40% average gross margin on the semiconductor side of the business.

Firm maintains WFR as their top pick due to belief that polysilicon pricing will continue to rise for the next four to six quarters, causing revenue and profitability upside surprises. Sector Outperformer, $78 tgt.

Notablecalls: 5 bucks higher I would have called this note actionable. Yet, around current levels WFR actually looks reasonably priced. Not making a call here.

1 comment:

Zach said...

It seems that if your thesis is correct and the ramp up is pushed out a quarter, investors will get restless (maybe the May drop already discounted this) and the multiple will contract. It would likely bring EPS for 07 below $3.00 which would definitely cause a bit of a disturbance to the current uptrend.