Thoughts Ahead of WFR’s Q4 Earnings $WFR

I’ve been an investor in WFR for about 2.5 long suffering years. The stock closed today at $11/sh (52 wk range is ~$9-$17).

MEMC Electronics reports earnings Tuesday Feb 1, and I’m nearly certain that Q4 will be a very strong quarter. Revenue and earnings will be upsubstantially from prior quarters. Consensus estimates predict 80% q on q revenue increase from ~$500M to ~$900M largely due to the SunEdisonsubsidary’s sale of one large solar project–70MW Rovigo Italy.

Just for the sake of discussion, if this one plant sold for $5.5/W (severalprojects in Italy sold at higher prices earlier in 2010) that wouldrepresent $385M in revenue for the SunEdison subsidiary, a quantum jumpover SunEdison’s meager sales in q3. SunEdison built/sold other smaller solar plants in the quarter, but Rovigo was certainly the main event.

Meanwhile, given the continued strong demand for silicon in q4 (WFR’s primarybusiness is the sale of high grade silicon to both solar cell andsemiconductor chip markets), it seems likely the silicon business willbring in at least the $480M in sales (probably closer to $530M assuming10% q/q growth).

Unfortunately MEMC did not provide earningsguidance for q4 in q3, so we are left to speculate (or react if we waituntil Tuesday’s number’s are reported). Estimates are all over themap–from $0.12 to $0.60 per share–with the consensus (if you can callit that) at $0.34/sh. Given an outstanding share count of ~227M thattranslates to ~$75M in net income for the quarter. (Net income was17.6M GAAP or 22M non-Gaap in q3; $0.08 and $0.10 respectively.)

SunEdison was an earnings drag in q3 and will be an earnings star in q4. IfSunEdison were simply to brake even in q4, WFR earnings would come inabove $0.12/sh. Given the huge revenue SunEdison will generate in thequarter (it may be north of $400M) I expect earnings will besignificantly stronger. For example if SunEdison is able to capturejust $0.50 per watt as income that adds $35M to the bottom line (+$0.15/sh) and I’d expect SunEdison is able to convert a much largerfraction of project revenue to earnings…but we won’t know for sureuntil Tuesday.



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