MEMC's Big Rally: Why Is the Solar Stock on Fire?

NEW YORK (TheStreet) -- MEMC Electronic Materials (WFR) is up by double-digits on Wednesday after providing investors with a bullish outlook on 2011 -- the company guided revenue for the full year above the Street consensus by a range of $700 million to $1 billion. MEMC's top end for earning per share in 2011 is $1.30, also well above the $1 Street consensus -though the company still has $1 as its low-end EPS target.

MEMC missed earnings again, and its semi wafer business experienced a profit stall, yet MEMC shares are on fire on Wednesday. Why?

TheStreet spoke with Paul Leming, analyst at Princeton Tech/Soleil Securities, about MEMC's big rally. Leming, who has been covering MEMC for many years, had an earnings per share estimate of $1.28 for MEMC in 2011 -- coming in closest to the bullish target that the company presented in its Tuesday earning report [several analysts raised EPS estimates to the mid-point of the MEMC range, $1.15 to $1.16, on Wednesday]. Leming thinks that MEMC is a very different animal than most solar stocks, and its recent string of disappointments set the stage for a major relief rally.

TheStreet: The past few quarters in solar earnings, the trend has been beat-and-raise quarters, followed by a selloff, in many instances with investors unwilling to bid up solar stocks based on solar management outlook confidence. MEMC inverted that recent trend, missing the consensus again, yet guiding way higher than the Street and rallying. How did MEMC accomplish this feat?

Leming: "I think the debate over whether they missed on the fourth quarter is pointless. Let's move on. I never try to go back and quantify the past. The fact is that MEMC has missed consensus for several straight quarters [the earning miss record for MEMC spans as much as two years, though it also includes a since-replaced management team], and that alone means that it won't react to earnings in the same way as all the other stocks with their history of beating and raising. It's a relatively unique set of circumstances for MEMC, and the management team is still relatively new."

TheStreet: MEMC has been a dog, and yet, it trades at a price to earnings ratio that's almost twice many of the Chinese solar stocks. So if it's rallying based on its long history of underperformance, it's not because it has had a compressed multiple compared to the solar universe, is it?

Leming: "P/E multiples are a bad way to value solar stocks. When you look at enterprise value/EBITDA, MEMC and SunPower are valued at even lower multiples than the Chinese solar stocks."

TheStreet: Does MEMC deserve a different grading metric than the rest of solar?

Leming: "Until it puts up a few good quarters in a row, yes, it's graded differently, and this is almost a relief rally. This stock has horribly lagged the market and been one of worst performing stocks in the solar sector."

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