Evergreen Solar, Inc. (ESLR): We are on the sidelines until EverQ uncertainty is resolved; Neutral -Goldman Sachs - February 04, 2008
What's changed
Key takeaways from 4Q:
(1) EPS of $0.01 came in above our estimate of a loss of -$0.06 on account of stronger revenue growth and margins than forecast,
(2) Evergreen mgmt reiterated their expectation of sustainable profitability by the time the Devens facility reaches full capacity, which should be in early 2009,
(3) Management announced an additional polysilicon agreement with DC Chemical to allow for further expansion.
Implications
We continue to stay on the sidelines with shares of Evergreen as, until the future of EverQ is resolved, we find it hard to gauge whether risk/reward is favorable. We maintain our Neutral view and favor other companies at this point in time. We are updating our 2008-2010 EPS estimates to $(0.19), $0.30, $0.52 from $(0.12), $0.35, $0.70 to account for the latest quarter’s reported information and updated guidance. Given the uncertainty described above, there is considerable noise likely to the Evergreen financial model.
Valuation
We maintain our 6-month $13 target price. Our target price is based on a 1.25X PEG multiple on 2012 estimates discounted back at the cost of equity. In addition to our PEG analysis, we also take into account out-year multiple and DCF analysis. Given the uncertainty surrounding the EverQ potential IPO and the ramp of non- EverQ operations, we expect volatility.
Key risks
(1) Execution problems during capacity ramp.
(2) Problems continuing to drive costs lower.
(3) Industry oversupply hits harder than expected and drops pricing below forecasts.
(4) Negative government policy/ incentive changes.
(5) Other technologies making more progress than ESLR’s string-ribbon.
(6) “Noise” in earnings trends given uncertainty as to the potential IPO of EverQ and ramp of non-EverQ facilities. |
