Price Hike Powers Shares of MEMC

MEMC's sales are expected to increase 10% with earnings growth of 23% this year, according to Wall Street's consensus earnings estimates from Thomson First Call. Next year, sales growth is predicted at 15% with earnings growth of 24%.

The range for 2006 earnings, however, shows a wide degree of variability with eight analysts seeing earnings between $1.18 and $1.56 a share, with the average at $1.36.

The latest rally in MEMC shares was sparked earlier this week by analyst Paul Leming of Soleil Securities Group, who said polysilicon maker Advanced Silicon Material plans to sell its external poly exclusively to the solar panel market in 2006, thereby removing 5% of the world's poly supply available to the chip industry.

For Leming, that's another positive for MEMC. He currently holds the highest earnings estimates on Wall Street, and he says it's only a matter of time before the average moves toward his target. Leming's company has no investment banking relationship with MEMC.

The St. Peters, Mo.-based company's stock has been one of the year's hottest equities, up 50% from $13.25 at the start the year. The gain has corresponded with an aggressive campaign to pay down debt. It also occurred as the company's controlling shareholder has steadily sold shares into public markets, raising trading liquidity and arguably boosting the valuation.

At Friday's closing price of $19.88, the stock trades at 14.6 times next year's expected earnings. Based on Leming's target, the price-to-earnings multiple drops to 12.8.

As the stock has increased this year, its forward P/E has stayed in the 12 to 15 range, indicating that investors still haven't pushed the shares ahead of fundamentals. At a certain level, the stock becomes too pricey, but it's not there yet.