Solar Cult Handed a Buying Opportunity

by StockJockey

Thursday, April 03, 2008 - 11:30 am

Originally Published In the News April 3, 2008 11:30 AM

Long time shareholders of MEMC Electronic Materials (WFR-NYSE) have enjoyed a remarkable run. The most dangerous words on Wall Street are “this time its different”, but in MEMC’s case it is true as the stock has seemingly settled into a valuation that would have been considered absurd by BuySide analysts earlier this decade.

The company is a sexy play on solar energy, and hot money traders control the stock day to day . Today it is trading down on news the bulls no doubt view as mere “noise”:

MEMC Electronic Materials Inc lowered its first-quarter revenue outlook, missing market estimates, citing disruptions at one of its facilities, sending its shares down as much as 11 percent.

The company, which supplies silicon wafers to the chip and solar industries, said the disruptions caused utilization at its Pasadena, Texas, facility in the first quarter to drop about 20 percent from the fourth quarter. MEMC said it experienced accelerated buildup of chemical deposits inside the new expansion unit at the facility.

A shortfall in first-quarter earnings is expected due to the production problem, analysts told Reuters.

The company has had a good track record of execution in the past, but going forward it is going to be a more competitive market as both established players and newcomers add capacity, JMP analyst Krishna Shankar said. Tightness in polysilicon supplies has driven higher prices for the material that turns sunlight into electricity inside solar cells, although supplies are expected to become more ample over the course of 2008.

“Right now it’s a sellers market where because of strong solar demand there is a huge shortage of polysilicon raw materials,” Shankar said.

For the first quarter, MEMC now expects revenue of about $500 million, compared with its earlier forecast of $560 million.

MEMC also lowered its first-quarter gross margin to about 52 percent from its earlier forecast of about 54.8 percent. Analysts on average were expecting the company to post earnings of $1, excluding items on revenue of $558.94 million, according to Reuters Estimates. Reuters

Thematic investors will no doubt return to the stock after the beat down runs out of steam, and bulls no doubt look forward to seeing the stock trade with a nine handle again. The stock is likely to suck wind for a while, but might make a run at 52-week highs later this year if bulls can justify the new valuation range the stock has entered.

MEMC cuts Q1 rev outlook on plant disruptions
Reuters

The Cult/Sun King