Wednesday, December 12, 2007

MEMC (NYSE:WFR): Ahead of itself? - Citi

- Citigroup is out with some cautious comments on MEMC (NYSE:WFR) saying the stock was up ~5% yesterday in a relatively flat tape (and up ~20% in past week alone) on news that STP will accelerate its solar capacity ramp by 2 years with an updated target of 1GW by YE08 and 2GW by YE2010. While it appears the market is pricing this in as upside to WFR (one of three contract suppliers of polysilicon to STP), the firm surmises that a major chunk - if not all - of this additional capacity will actually be supported by STP's recently announced 7-yr deal to source polysilicon from Asia Silicon where checks suggest pricing is much lower than the terms of STP's deal with WFR.

While there still remains roughly 100MW of poly capacity that STP must secure to reach its C2008 targets, Citi estimates it won't result in more than ~$5MM upside to their model for FQ4:07 (Dec) or $0.01-$0.02 in EPS at best.

Net/net, while this is not a negative for WFR, the stock has recently discounted a big beat and raise for FQ4:07 (Dec) due to a very strong spot market and even if one assumes a best-case scenario for the spot market, this would only drive revs to the high-end of WFR's guidance for CQ4 and just a few $MM better than current Street expectations. Maintains Hold and $65 tgt as the stock appears to be ahead of itself.

Notablecalls: WFR sure looks to have gotten ahead of itself.


Joe said...

I agrre that WFR could be extended, but hope Mr. Arcuri doesnt get the credit for calling this one correct. He has been neutral (with a bearish leaning) on WFR for 3 years. No kidding. He missed the stock at $15-$20 and has been rating the stock a 'Hold' with his target price being 20% below current price ALL THE TIME. While his data points are interesting and worthy, he has to go back to school to learn valuation. After the stock has quadrupled from his initial bear$hit research, he's bound to be right some time. Hell, even a broken clock is right twice a day!

notablecalls said...

point taken!