J.P. Morgan Lowers Price Target on MEMC Electronic Materials (WFR)

J.P. Morgan is out with a research report this morning, where it reiterates its Underweight rating on MEMC Electronic Materials WFR; it also lowered its price target to $9.75 from $12.00. The JPM analysts said, “Heading into the C2Q10 earnings season, we continue to recommend investors remain on the sidelines on WFR. In spite of what appears to be continued strong demand for solar wafers in C2H10, we believe semi wafer price appreciation (and associated GM uplift) is likely to disappoint given recent news from Wacker Chemie and Shin-Etsu. We believe most investor interest in WFR is due to its close proximity to Tangible Book Value (TBV) and reduced risk of downside. However, we believe TBV is likely to decline further before troughing & believe the risk/reward at this time remains unfavorable.” They added, “We remain skeptical on the ability for semi wafer makers to raise prices meaningfully in the near term given that semi wafer makers are still not operating at full utilization rates. Recent news from Wacker (Siltronic) and Shin-Etsu appear to support our view that price increases in semi wafers will only be modest this year. We do believe semi wafer pricing will improve over the long term, but also think new 300mm memory Fabs will need to be built (which hasn’t happened yet) in order to ensure semi wafer demand is on a structural growth trajectory which would likely create a solid basis for sustained ASP uplift.” The J.P. Morgan analysts further said, “(We are) reducing our Price Target due to our expectation of a lower TBV. Our new Dec 2010 price target is now $9.75, which is based on our view that the company’s TBV is likely to drop below $8/share in C2H10 and a lack of earnings visibility into 2011 warrants a discount multiple to the group average. Once we get comfortable TBV has bottomed we could get more positive on WFR, however, at this time we think TBV is likely to decline from current levels putting downside pressure on WFR shares post the C2Q10 earnings call. WFR trades at 1.3x its TBV of $8.10 vs. our alternative energy group average of 2.3x.”