Decent 3Q but future potential is uncertain; maintain Neutral rating - Goldman Sachs - October 30, 2007
What's changed
Key takeaways from ESLR’s 3Q:
(1) 3Q EPS of –$0.04 loss was slightly better than the forecast loss of – $0.06 by us and consensus due to better than expected revenue and margins,
(2) Guidance for 4Q was in-line but no guidance for 2008 or beyond,
(3) Perhaps the biggest news was the announcement that the EverQ JV is seeking to do an IPO. However, details were extremely limited as to how mgmt saw the IPO changing the way ESLR does business in the future.
Implications
Given the considerable uncertainty to the Evergreen story and earnings model, we do not see a compelling opportunity to the long or short side and maintain our Neutral rating. The latest uncertainty, the announcement that their EverQ JV might seek an IPO, only adds to other uncertainties such as how their non-EverQ operations might ramp. We are updating our FY07-FY09 EPS estimates to $(0.25), $(0.12), $0.35 from $(0.26), $(0.08), $0.34 to incorporate the latest quarters reported information and guidance. There are not material changes to our forecasts.
Valuation
We are increasing our 6 month price target to $11 (from $10) on account of slightly better out-year estimates given the potential for the Devens facility and other non-EverQ operations to ramp. However, as we discussed above, there is uncertainty as to how ESLR’s business will progress. We expect considerable volatility to the shares but maintain our Neutral rating given that risk/reward does not favor a long or short position in our view.
Key risks
(1) Industry oversupply hurting pricing and margins,
(2) Other technologies progressing faster than ESLR’s string-ribbon technology,
(3) “noise” in earnings trends given uncertainty as to the IPO of EverQ and ramp of non-EverQ facilities |
