News Summary
GT Solar (SOLR: $9.50) reported revenue of $229 million and diluted EPS of $0.28, beating estimates of $199 million and $0.24. Management raised guidance fiscal 2011 (FYE March) to $775-850 million and $1.08-1.18 (accounting for share 26.5 million share repurchase), relative to street expectations of $753 million and $0.93.
Management's comments were quite bullish
"The sustained strength in PV bookings in our Q2 and the first five weeks of Q3, combined with the continued stability and potential of our polysilicon business, provide the basis for us to significantly increase our guidance for the balance of the fiscal year."
"We have effectively sold out our material capacity for the balance of this fiscal year, and the demand we are seeing is in excess of the capacity that we plan to put in place in fiscal 12. In addition, the sapphire equipment business has advanced more rapidly than originally expected and we believe that we will be signing sizeable equipment orders before the end of the fiscal year."
My interpretation beyond the obvious is: pricing power (although careful with this power), which can equal accelerating revenue growth and margin expansion.
Takeaway
Keeping the ~4% full position to ride the secular trend of demand for solar energy and weakening dollar. Assuming C2011 moves to around $1.20 (only 2 cents higher than the top end of F11 guidance), SOLR is trading at a P/E of 8x, compared to First Solar (FSLR: $140.90) at 16x, MEMC Electronic Materials (WFR: $13.00) at 13x, and LDK Solar (LDK: $13.20) at 11x.
Given the median P/E of the comparable companies in the low double digits, and the strong bookings of the company suggesting on-going momentum over the next couple quarters, I believe the C2011 P/E for the stock can move into the low double digits for a price target over the next six months around $15, or over 50% upside from here.
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