MEMC Electronic’s (WFR) stock zoomed 21% last Friday after announcing earnings, which included downward guidance for revenue and slightly better-than-expected earnings. Earnings, however, would’ve missed expectations had it not been for a one-time gain from the exercise of some warrants.
Why the stock’s rise? The only other explanation is MEMC’s simultaneous announcement that it had struck a 10-year deal, valued at $7 billion to $8 billion (with a “b”), to supply solar chips to Conergy (OTC:CEYHF) a German company that bills itself as the world’s largest installer of photovoltaics systems.
Pretty impressive. However, now hear this: Also on Friday, but lost on MEMC investors, Conergy issued a whopper of an earnings warning that caused its stock to plunge by 30%. The whole thing went over the heads of MEMC investors, of course, because Conergy’s stock only trades in Germany, where its shares plunged by 30%. “We were left shell-shocked on Friday by the extent of Conergy’s profit warning,” is the way the Citigroup analyst in Germany who covers the company put it in a note to clients.
That’s not all: As part of the deal, which starts in a year, MEMC says that Conergy “will advance funds to MEMC in the form of a capacity reservation deposit.” Just one problem: Conergy’s IPO-infused cash has been collapsing since going public in 2005 while its debt has been soaring. Furthermore, receivable days outstanding are close to 200 days, inventory is around 150 days and inventory days are payables are about 100 days. No wonder the company just changed CFOs.
At the very least, the Conergy news should give MEMC investors reason to pause, think and ask a few questions. (I know, I know, none of this matters. Solar is hot. But, hey, housing once was, too!)
The beat goes on….