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$54.96 -2.33 (-4.07%)
7/3/2008 1:02 PM

MEMC Electronic Materials, Inc. (WFR)

CAPS Rating:
****

The Company is a worldwide producer of wafers for the semiconductor industry.

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Avatar Hcurb1 (95.99) Submitted: 10/24/06 5:31 PM : Underperform Start Price: $36.75 WFR Score: -57.88

MEMC is a great turnaround story. They are generating extraordinary EBITDA margins and FCF. My concern would be the sustainability of the margins. There is a lot of polysilicon and 300 mm wafer capacity expansion planned over the next 1-2 years which is banking on 2 key assumptions:

- 1) Continued strong growth in the semi cycle (caused problems for WFR and other in the past)
- 2) Continued rapid growth of solar cells, specifically the more traditional (and thicker) type.

I don't think we will see any of these headwinds materialize to any great extent in the next quarter or so, but I do believe that upside is limited given the record EBITDA margins. However, I think the downside is substantial because in the end, polysilicon and wafers are commodities, and commodities can result in bloodbaths in down cycles. You could easily see this stock at half the level it is at today once margins fall down to more reasonable levels based on history (maybe 1-1.5 years out).

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Avatar EPS100Momentum (68.27) Submitted: 3/23/07 12:03 PM

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Explain this than Mr. Bear : WFR - MEMC Electronic Materials: Merrill Sees Pricing In Its Favor
Friday March 23, 7:38 am ET

Notable Calls submits: Merrill Lynch is raising price tgt on MEMC Electronic Materials (NYSE: WFR - News) from $60 to $73 as a result of their higher 2008 estimates reflecting stronger polysilicon pricing.

Semiconductor wafer prices are also rising while volumes should increase after 1Q07. Given the sustainability of these trends, firm's price target only requires that the current 19x 2007 P/E is maintained as valuation shifts to their new 2008 estimates. This is conservative vs. their 21x sum of the parts peer valuation calculation.

Several poly suppliers have recently signed long term contracts with semiconductor and solar companies, and others are taking prepayments signaling a tight market for several more years. In the biggest move, REC, announced a 7-year agreement to supply poly to SUMCO, the 2nd largest semi wafer maker, with rising pricing through 2010! This shows that the tight poly market is increasingly impacting the semiconductor market and not just solar.

Falling solar costs from technology driving market growth Solar cell makers are finding ways to lower the cost per watt of electricity through technological advances which is spurring market demand and volume growth that keep poly supply tight.

Firm raised their operating EPS estimate (w/stock comp, 17% cash tax) for 2008 from $3.55 to $3.85 on stronger revenues of $2.32 billion (up 6% from $2.185 billion previously). Firm's estimates are slightly above consensus and reflect a higher contribution from solar, as their semi assumptions remain largely intact.

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