In each of the past two quarters operational issues at the Pasadena facility have had a negative impact on revenues and earnings. While the situation bears watching, we believe it may have created an attractive entry point for patient investors.
MEMC signed two solar wafer agreements worth between $8 billion and $9 billion over the next 10 years. The 300-mm wafer-size is the preferred wafer size headed into 2008. According to the Semiconductor Industry Association's (SIA) annual forecast for 2007-2010, semiconductor sales are expected to grow at a compound annual growth rate (CAGR) of 7.7% to $321.5 billion in 2010.
MEMC trades at a multiple of 12.3x our estimate of 2009 earnings (P/E).We expect the firm to outgrow the general semiconductor industry. The firm's $1 billion-plus balance sheet should pave the way for future share buybacks and potential mergers in the solar industry.
The company's margins continue to improve. We feel the weaker TSMC capital expenditure numbers are not a sign of weakness, but the situation bears watching. We value the company based on the average of our P/E multiple (26.0x 2008 estimated EPS) and our two stage intrinsic model. The semiconductor group average P/E is between 25x-26x. We feel MEMR should trade at a premium to its peers. We have arrived at a target price of $105.00.
Changing Product Lines at GM
General Motors Corporation (GM) management's increased focus on the Asia-Pacific region, enhancement of the product portfolio and aggressive cost-cutting are some of the positives of the GM story. The recent negotiation reached with the UAW is a major milestone. However, weak North American sales, falling production volumes and rising raw material costs increase our concerns. These compel us to rate the shares a Hold with a six-month target price of $17.50. This is 7.7x our 2009 earnings estimate.
The company has entered into a tentative agreement with United Auto Workers (UAW) for 74,000 autoworkers to pay $35 billion and transform their retiree health care benefits into an independent health care. The agreement is expected to remove more than $50 billion in long-term obligations from GM's books.
GM also aims to run its plants at full capacity or above by 2008, which will save structural costs. The company has reduced its workforce by 34,000 hourly employees. GM has also announced plans to close four pickup truck plants.
Looking ahead, GM intends to continue strengthening its product portfolio with the introduction of new models. The market responded favorably to GM's newly launched models. Meanwhile, GM has been particularly strong in China, the fastest growing automotive market. The company anticipates 45% of total vehicles sales in emerging markets including China, India, and the ASEAN region, as well as Russia, Brazil, the Middle East, and the Andean region in 2012.
UHAL Entering Into Upcycle
AMERCO Inc. (UHAL) is the parent company of U-HAUL International, the largest consumer truck rental company in the world. It is also the second largest self-storage company in N. America. The company reported fourth-quarter results that were close to expectations. EPS was above our forecast due to the application of an accounting change. Discounting is declining due to the peak travel period reducing the excess capacity. We are not changing our estimates at this time. Hence, we rate the stock a Buy.
The stock has usually been valued on earnings before interest, taxes, depreciation, amortization and lease expense (EBITDAL) per share, selling between two and three times EBITDAL. Based on our estimates for fiscal 2009 EBITDAL of 27 shares we would expect a price range of $54 to $81, with a potential move to the $90 level as earnings growth resumes. Our price forecast remains at $80.
