GT Solar: Excellent Entry Point Before Q4 Earnings

| About: GT Advanced (GTATQ)

GT Solar (SOLR) has announced two orders for Q1 FY2012, with a total revenue of $312.8 million: one order for $218.9 million for sapphire crystallization furnaces (LED) and one for $93.9 million for polysilicon equipment (solar manufacturing).

What is great about these two announcements is that it shows that GT Solar is playing in two diverse, high-growth fields. Also, even though both orders are from Asia, one is from Taiwan (as opposed to China).

Both orders are going against GT Solar's backlog for the first quarter of the 2012 fiscal year (ending July 2, 2011). According to Yahoo! Finance, analyst estimates for Q1 FY2012 revenue are $165.11 to $344.40 million. These two orders alone get GT Solar 90.8% of the way to the high revenue estimate for the quarter.

For the entire 2012 fiscal year, analyst estimates for revenue are $847.76 million to $1.06 billion, which match perfectly to the guidance GT Solar gave in the press release of its third quarter fiscal year 2011 results.

GT Solar estimates EPS for FY2012 to be between $1.25 and $1.50 as a result of $850 million to $1 billion in revenue. The $1.25 to $1.50 per share represents a net income of 19% of revenue. During the last reported quarter (Q3 FY2011), it did better at 24%. In the Q3 FY2011 press release, CEO Tom Gutierrez said, "gross margins were above our new long-term target of 40 to 42 percent"; therefore, if gross margins are more in line with the company's target for FY2012, 19% is probably a reasonable and achievable target.

click to enlarge image

Source: Yahoo! Finance

FY2012 should be at the high end of guidance to say the least.

FY2012 Revenue Analysis
$1,230,000,000 Backlog as of January 1, 2011
-$388,100,000 "Deferred Revenue"
-$235,560,000 High Analyst Estimate for Q4 FY2011 (January - March)
$606,340,000 FY2012 Revenue as of January 1, 2011
+$312,800,000 New Orders (Q1 FY2012)
$919,140,000 Booked Revenue for FY2012
Click to enlarge

Looks like GT Solar is well on its way to meeting or exceeding the current high revenue mark for FY2012. I would not be surprised to see Mr. Gutierrez revise his guidance up yet again when he reports Q4 FY2011 results.

With no additional orders, $919.14 million in revenue should translate to an EPS of $1.34, right in the middle of GT Solar's guidance. I think it will get more orders, which means the EPS of $1.50 is very achievable. A simple 10x multiple means a $15/share stock. If you set the multiple equal to the EPS growth rate (27%), you get a $40.50/share stock.

When the $218.9 million order was announced (27-Apr-2011), the stock price soared 11.89% (from $9.75 to $10.91) on 214% volume increase. Keep in mind, this is after the price had fallen from its recent high of $11.68 in mid-January. Most of that decline was probably due to Fidelity taking profits and some officer selling.

With the run-up in price after the announcement, it's obvious someone else besides me has done the math. This may mark an excellent entry point before the Q4 FY2011 earnings release and any potential analyst revisions. I would like to see Piper Jaffray change its rating from underweight to overweight. According to Yahoo! Finance, current average analyst rating is 1.8 [(Strong Buy) 1.0 - 5.0 (Sell)].

GT Solar is currently undervalued to its FY2012 earnings.

Disclosure: I am long SOLR.