SOLR designs and sells capital equipment and related services used in both the polysilicon production and ingot production segments of the PV manufacturing process.
Positives:
(1) Positioned as supplier to accelerating solar industry. Equipment supplier to manufacturers of solar cells and panels, an industry expected to grow at an annual rate of well in excess of 20% over the next few years. Through the Crystal Systems acquisition GT Solar is also a provider in the LED market, expected to grow at an annual rate in excess of 20% over the next few years.
(2) Largest customer, LDK Solar (Ticker LDK) yesterday announced a major financing arrangement for $8.9 billion to enable it to expand its capacity. This financing should translate into future orders for GT Solar, which may come sooner rather than later if LDK has been waiting for financing before placing orders.
(3) Hitting positive screening points. Raised F11 revenue and EPS guidance in August to $700-775 million and $0.90 and $1.00 with a book-to-bill of 2.6x. P/E of 9x on the consensus F11 EPS estimate of $0.92, with F12 appearing conservative at $0.89 offering opportunities for estimate increases. High Return on Investment of over 50% during the past year. No debt and healthy cash balance of $276 million, driven primarily by health free cash flow. Exporter of durable goods that should benefit from a weakening dollar. Company should be able to pass along cost increases of raw materials. Potential acquisition target if industry consolidates vertically.
Negatives:
(1) Spotty operating history with large sporadic orders for equipment that can cause revenue and earnings misses.
(2) Potentially hurt by trade war between the U.S. and China.
(3) Competitive marketplace with national interests potentially skewing orders.
(3) Large Private Equity shareholder likely provides selling pressure in future, although the company just completed a follow-on offering as a liquidity event for investors.
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