GT Advanced Technologies Just Lowered the Boom

When companies forecast lower sales or profits, their stocks usually take a hit. It's not always easy to tell whether it's having a fire sale or burning down. Maybe it is time to get out -- or maybe it's time to buy more!

Last week, polysilicon equipment maker GT Advanced Technologies (Nasdaq: GTAT  ) said delayed orders and potential new tariffs on Chinese solar cells will likely add up to third-quarter losses. It said it could lose as much as $0.05 per share, though it's also possible it might produce a $0.02 profit, but either scenario well below the $0.21 analysts were expecting.

Now don't go blindly selling into its bearish report -- you still need to do some research. Use the announcement as a jumping off point for additional research.

GT Advanced Technologies snapshot

Market Cap $770 million
Revenue (TTM) $892 million
1-Year Stock Return (14.4%)
Return on Investment 24.6%
Est. 5-Year EPS Growth 10%
Dividend and Yield N/A
Recent Price $6.49
CAPS Rating ****

Source: FinViz.com N/A = not applicable; GT doesn't pay a dividend.

Free is for me
Solar is a busted industry marred by a cloudy future of slashed subsidies, myriad bankruptcies, and a supply glut that pinches margins. With the loss of government support, there's a serious hole that's been created in demand, so much so that the industry is giving away their product. I'm actually having a solar panel system installed free of charge with the company maintaining it at no cost to me for 20 years while guaranteeing electricity rates below those I currently pay my utility. The economics of the deal make sense for me -- I'm not so sure about everyone else.

Although GT believes the delayed orders worth about $50 million will show up in the fourth quarter, the proposed tariffs European governments are mulling over could wreck its business because China accounted for more than half its revenue last year. Worse, the U.S. is already in the midst of a trade war with China over solar, having levied duties of 31% against Chinese solar cell and wafer manufacturers. In retaliation, China opened up an investigation on imports of solar-grade polysilicon from the U.S.

Suntech Power (NYSE: STP  ) , the top Chinese solar-panel maker, is at risk of losing its New York Stock Exchange listing because of its share price, which frequently trade below $1 a stub these days. Like LDK Solar (NYSE: LDK  ) and Trina Solar (NYSE: TSL  ) , both of which have seen their core markets wither, Suntech is having to cut production and slash its workforce.

LEDing the way
Yet unlike many other solar names, GT has something of a backup plan in its LED sapphire business. At the same time it was announcing probable losses because of solar, it also said it had received a $29 million follow-on order for furnace units to be used in equipment to manufacture mobile phones. It believes sapphires could become a more cost-effective alternative to other materials being used, such as Cornings' (NYSE: GLW  ) scratch-resistant Gorilla Glass.

The operating segment accounts for 22% of GT's revenues, but less than 19% of its gross profits. Falling prices have weighed heavily on the industry, impacting other sapphire producers like Rubicon Technology. But prices haven't fallen far enough yet to make sapphire a real threat to Corning.

According to analysts at Sterne Agee, Gorilla Glass sells for around $0.15 per square inch compared to exceptionally conservative estimates of $3 per square inch for sapphire. It wouldn't take much to cause the sapphire business to grow exponentially -- nabbing just 2% of the smartphone market would double the industry's size -- but prices have to fall a lot further, and low prices are already a bane to the players there now.

It's a free-for-all
At less than five times earnings estimates and nearly half its expected growth rate, GT does look cheap at these levels. While it did reiterate its full-year guidance, underscoring its belief that its orders will come through, the solar industry remains too weak at the moment to believe GT will advance much further at the moment. The sapphire line, while holding promise, isn't competitive enough yet in either smartphones or its core LED business to warrant an investment.

I've rated it to underperform the markets on Motley Fool CAPS, and won't change that even after the pullback in its price, but tell me in the comments box below if you think there's a chance GT Advanced Technologies will still shine.

Looking under rocks
Corning remains an innovative powerhouse with hands in several growth industries. The Motley Fool's brand-new premium report breaks down the opportunities -- and the risks! -- the company faces, all in easy-to-follow, plain English. The offer also includes a full year of updates on Corning's progress. Click here to get started now.

Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Corning. Motley Fool newsletter services have recommended buying shares of Corning. The Motley Fool has a disclosure policy.
We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (4) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 25, 2012, at 9:33 AM, sirfisupp wrote:

    Chinese banks like the US Govt backing of GM have decided to help their most prominent solar companies and the solar glut of today will only last through 2012 as all the major Chinese solar companies are focussed on reducing cpaacity and operational costs. The writer like most solar bashers are complete idiots. The writer likes to have the cake and eat it too. Amazingly the writer a complete idiot likes the idea of having solar panels installed on his house yet likes to bash the industry. What kind of morons do you have posting such ridiculous statements it is no wonder that the Motley Fool is for amateurs.

  • Report this Comment On September 25, 2012, at 2:59 PM, sailrick wrote:

    GTAT has cutting edge solar manufacturing equipment.

    GTAT also makes cuttng edge equipment for making sapphires for LEDs

    So they are in a sweet spot for two emerging industries.

  • Report this Comment On September 25, 2012, at 3:01 PM, sailrick wrote:

    China will create enough demand in China to take up a lot of the excess capacity in solar.

    Sept 18 2012

    "China is now launching a major build out of solar electricity generation in the domestic market, aiming for 21GW of installations by 2015, increasing its previous target of 5GW by five-fold."

    {By Shareholders Unite at Seeking Alpha}

    --------------

    The Chinese government will spend $450 billion supporting renewables in China, over the next five years and $750 billion by 2020.

    they have set a goal of 15% renewables by 2020

    their new goal for wind power is 1,000 GW by 2050 and 150 GW by 2020

    They have set a goal of 50 GW of solar by 2020

    There is a city in China where over 800,000 people are employed in solar energy

    There are 120 million installed solar water heaters in China.

    (1,000 GW of wind power is equivalent to about 300 nuclear reactors, using 30% capacity factor for wind, for it's intermittancy, and a rough estimate.

    Nuclear plants are about 85% capacity factor. The average nuclear plant is 1 GW, though some are twin reactors)

  • Report this Comment On November 25, 2012, at 9:17 PM, investingNideas wrote:

    Man look at those short volume

    http://investingnideas.com/?ticker=GTAT&s=11

    Me thinks that does not look so good

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