Comments on: MEMC Electronic Materials (WFR)

By: Aaron

Aaron — Tue, 21 Aug 2007 01:44:48 +0000

WFR actually looks quite undervalued to me. As you said, the growth forecasts seem to be quite high for WFR, possibly even too high, but even if they fall some the company still trades at a great looking PEG ratio and a discount to its peers. An economic downturn doesn’t hurt a company like WFR as bad as stocks in other sectors in my opinion. Love reading the analysis on the site, but have to disagree on WFR.

By: Zach

Zach — Tue, 21 Aug 2007 01:09:43 +0000

Thanks for the comment RJ. One of the best reasons for doing this blog is getting opposing viewpoints and insights. Most analyst reports I have read are bullish and it does seem to me that investors are pricing in a robust outlook. Many semiconductor capital companies trade in the low double digit multiples. However, you raise some very good points that investors should keep in mind. Risk control is paramount and if my analysis is wrong (wouldn’t be the first time) I will quickly take my losses and move to cash rather than stick around and lose capital taking a loss. RJ, I hope you stay in touch and we can see how this turns out. Good luck with your position.

By: R.J.

R.J. — Tue, 21 Aug 2007 01:03:47 +0000

Please note that in the above reply in paragraph 2 it should read as “Projected for SALES for ‘07 is between $1.93-$199B.”

All of the assumptions in paragraph 2 are based on Zach’s assertion that MEMC’s solar sales being 5-10% of total sales. By using the contract with Sun Group I extrpolated total SALES revenue using both the 5% and 10% amount and the Sun Group 10 year contract of between $5-$6B.

By: R.J.

R.J. — Mon, 20 Aug 2007 21:56:55 +0000

Not so fast Zack. You did SOME homework just not ENOUGH. Using TPG as example of both fine business acumen and a barometer of sentiment is faulty. TPG has liquidated some of it’s postions in order to join KKR in the TXU takeover. In fact TXU is currently trading below it’s targeted buyout price of 69.25. Your Private Equity “smartest men in the room” theory is being drastically tested as financing deals becomes harder to get and
way too many paid too much for many of their deals as Equity Office Properties/Sam Zell illustrates. Their smart until their not smart anymore.

Maybe you didn’t get the memo, but MEMC has hedged a lot of their future solar sales with a $5-6 billion contract with Sun Group (STP holding company) over the next ten years. They just began shipments this quarter. If this contract alone was to represent 10% (the high end of YOUR est.)of MEMC’s total revenue and we use the low end of the contracted sales of $5B that would mean a minimum of $5B in sales averaged over the next 9 1/2 years and a maximum of $12B in average sales using your %5 of total revenue and $6B contract price. The projected earnings for ‘07 are between $1.93-$99B.

Your supposition of sluggish demand in semi’s is drastically different from most analysts. Credit Suisse’s John Petzer just upgraded INTC citing “Strong demand trends taking hold, including corporate PC upgrade cycle, virtualization and multi-core; he sees ASPs rising as a result.”

You also cite competition and an economic downturn in your thesis. Regarding the competition MEMC has hedged some of it’s future sales revenues with contractual obligations. Obviously you have taken into account that the financing of large plants required to make wafers has become much more expensive and harder to get thus some of the would be competitors will never get it done. As far as an economic dowturn is concerned, I think that is your best argument but even that is suspect at this point.

FD: WFR Long Postion

By: Dave Marks

Dave Marks — Mon, 20 Aug 2007 20:35:46 +0000

Your analysis of WFR is interesting, but wrong (for one simple reason)!

Wafer’s current year and next year’s projected P/E ratios are in the mid and low teens, which is why it’s a terrible short play right now. Thus, each of your potential “weaknesses” in WFR stock, is already more than reflected in the multiple.

WFR is a great BUY here, not a sell…as you will soon find out…

By: boris

boris — Mon, 20 Aug 2007 18:23:56 +0000

i have been working on an equivalent: Hoku Scientific-hoku. there was big news involving STP and others in past 60 days , a big run up in past 60 days, and then a gaint dip, almost back to square one. I will work on WFR.