MEMC Shines as Play on Silicon Shortage

Powering Higher

All of this good news could drive earnings upside for MEMC in 2006. As it stands now, Wall Street is looking for the company to earn $1.38 a share in 2006, up from estimates for $1.02 a share in 2005. Part of the earnings growth is forecast to come from cost controls, and the remainder should be driven by 16% top-line growth to $1.31 billion.

At its recent quote, shares trade around 3.5 times 2006 sales forecasts and 17 times 2006 earnings estimates. I believe the earnings part of the price-to-earnings ratio has the potential to expand beyond analyst expectations in 2006 should solar demand, coupled with strong semiconductor volumes, continue to curtail supplies. Either way, shares currently trade at roughly a 30% discount to the industry.

There are very few secular growth markets with pricing power, but MEMC appears well-positioned to benefit from strong pricing trends and surging demand. I believe that continued excitement surrounding solar power and greater investor recognition of the current silicon shortage will drive shares higher in the coming year.

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