Analyst Calls MEMC Electronic (WFR) Highly 'Oversold'

Hapoalim Securities initiates coverage on MEMC Electronic Materials (NYSE: WFR) with a Hold rating. The firm set a $17 near-term price target and a $32 long-term price target.

Although the firm believes that further weakening in semi demand has not yet been priced into shares of MEMC, it calls the MEMC "one of the most oversold stocks" in its universe, underpinned by:

1. net cash/share of $6.00 despite trading at just 6x our 2009 EPS estimate
   
2. current authorizations to repurchase as much as $1 billion worth of its own stock (2.2mm shares repurchased in C2Q08), and
   
3. the ability to fund growth organically through strong FCF generation ($117.7mm C2Q08) - a trait
   that many solar companies envy.

Hapoalim sees semi wafer demand falling materially lower heading into '09 given global deterioration in IT investments and weakening demand for high-end electronics. The firm is estimating that after moving about 8.7% higher in the first half of '08, MEMC's semi wafer unit shipments will decline by 20%. Given "negative 1H09 seasonal impact, and a much less resilient
consumer..." the firm believes this trend will continue into CY09 and is currently estimating a 17% and 23% decline in MEMC's 200mm and 300mm, semi wafer average selling prices, respectively, implying a 15-20% decline in semi sales growth in '09. This compares to a 12% decline in '08.

Hapoalim feels that investors will be focused on MEMC's Q4 outlook when it reports its Q3 results on Thursday, October 23. The firm is estimating Q4 EPS of $0.94, which compares to the Street consensus of $1.11, and CY09 EPS of $3.78, versus the consensus of $4.78. The firm also notes that MEMC has missed the mid-point of its guidance in 5 of the last 6 quarters.

MEMC Electronic Materials, Inc. designs, manufactures, and sells silicon wafers for the semiconductor industry worldwide.

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