GT Advanced Technologies (GTAT) has been range-bound over the last three months - the stock has been trading between $16.25 and $18 - with one dip close to $13 in May for a short period, before making a swift recovery. However, since that fall, the stock has been on a consistent upward trend, and currently trades at over its $18 resistance level.
The company operates in three segments: Sapphire, Polysilicon and Photovoltaic (PV). It is important to understand that the company is a supplier to the manufacturers and supplies equipment to companies operating in different sectors. We have talked about the Sapphire and Photovoltaic segment in our previous articles - in this article, we will try to further highlight the importance of the Photovoltaic segment to the company.
In the Photovoltaic segment, the company supplies Directional Solidification System (DSS) furnaces to manufacturers, which are used to make multicrystalline and MonoCast crystalline silicon ingots - these ingots are used to make photovoltaic solar cells and wafers. Photovoltaic has been an extremely important segment for the company, as the graph below shows its importance in terms of revenue generation.
Source: GTAT Earnings Presentation
The contribution from the PV segment has declined considerably over the last two years. As mentioned above, the company sells furnaces for manufacturing solar wafers and cells. Over the last two years, the industry dynamics have impacted the demand significantly. The price of Polysilicon also came under pressure. However, the prices of Polysilicon are recovering and the solar panel manufacturers are seeing increased demand. As a result, we will likely see more demand for GTAT's photovoltaic products.
GTAT recently agreed to supply its HiCz 200 furnaces to Qatar Solar Energy (QSE) - the furnaces work on the next-generation HiCz continuous feeding puller technology. It is an extremely important win for the company for its new product, which shows that manufacturers have confidence in the technology developed by GTAT. As I have mentioned in my previous articles, GTAT's technology can result in considerable benefit for the vertically integrated companies. Qatar Solar Energy is also a vertically integrated company that plans put up a 300MW project and later expand it to 2.5GW.
Cost and efficiency are two of the most important factors in solar panel manufacturing. There has been a considerable increase in the use of multicrystalline wafers due to the lower costs. However, with lower costs, these wafers also have lower quality - in order to counter the quality issue, the manufacturers are focusing on the ingot improvements - HiCz technology results in longer ingots that have better material uniformity and lower resistivity. As a result, the quality of wafers is improved at a lower cost.
Things are falling into place for GT Advanced Technologies to make a rally during the second half of the year. About 80% of the $600-800 million expected revenue for the year is expected to come from the Sapphire business of the company. However, as the Photovoltaic segment is also showing signs of growth as the manufacturers opt for HiCz, we can also expect the Photovoltaic segment to play a vital role in helping the company achieve its revenue target. However, on the Polysilicon side, the recent rise in the price is expected to come down, as the market might again face the prospect of oversupply. According to Bernreuter Research, new entrants and recommissioned Chinese plants will again result in oversupply of the material. At the moment, the price is at an average of around $21/kg, which is expected-to fall due to oversupply. The Polysilicon segment might result in lower-than-expected full-year revenues; however, as the majority of the revenues should come from Sapphire and Photovoltaic segments, this should not have a big impact on the total revenues of the company.
The bottom line is that the company is set to have a solid second half of the year, and its business segments are showing great promise. We believe that the stock will make a rally during the second half of the year, and a price in excess of $25 is a reasonable estimate looking at the growth opportunities both in the Photovoltaic and Sapphire segments. Furthermore, the company also expects the first order for Hyperion during the current year, which will further enhance its revenue potential. We believe GTAT will be a solid investment over the medium-long term, due to the ability of the company to develop unique technology and the growth prospects of its business segments.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article. This article is for educational purposes only and it should not be taken as an investment recommendation. Investing in stock markets involves a number of risks and readers/investors are encouraged to do their own due diligence and familiarize themselves with the risks involved.