MEMC Getting Ahead of Itself?

Citigroup is out with some cautious comments on MEMC (NYSE:WFR) saying the stock was up ~5% Tuesday 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-year 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 polysilicon 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 target as the stock appears to be ahead of itself.

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

(Editor: WFR is up another 5.8% Wednesday.)

Comments

[Harold Kramer]

You did not mention that WFR owns STP warrants. STP stock has gone up about $30 this quarter. This could contribute 10 cents or more to earnings of WFR this quarter. I look for an upside surprise in WFR Q4 report in January.

[Harold Kramer]

On further research it looks like STP is up $40-45 this quarter. Also, WFR will certainly make over $4.00 for FY2008. Citigroup has a $65 price target for 2008? Give me a break. One thing I've learned since the great NASDAQ bubble of 2000 is not to believe "analysts".

[pprimo]

Interesting. Wonder why SP (notably conservative) raised their price target from 82.00 to 101.00 a few days ago. 65.00 price target must be ancient. I smell a short smear job here. WFR still has yet to announce the other half of their new plant capacity sales. They can handle another deal of the size of the recent 8billion dollar Conergy deal.

[pprimo]

Correction, on my statement above, reviewing the 3Q conference call, on additional capacity, "A good question, Steve. We still have capacity out of our expansion to be able to do one other deal, about the size of the original or the combined Gintech deal."

That deal combined is $3-$4 billion in revenue to MEMC through 2017.