An analyst downgraded MEMC Electronic Materials Inc. Wednesday and said the silicon wafer maker's stock will likely face challenges due in part to Wall Street's high expectations.
JPMorgan analyst Christopher Blansett cut his rating to "Neutral" from "Overweight" on the St. Peters, Mo.-based company.
While MEMC has "very strong gross margins and high exposure to the fast-growing solar industry, we think the stock faces increasing near-term headwinds given the high Wall Street expectations and very tight capacity expansion schedule over the next few quarters," Blansett said in a note to clients.
Inventory levels_ which were high in the past and provided a revenue buffer _ have likely dropped as the company has had production issues over the past few years, he said.
The potential for subsidy reductions in Europe could shrink demand, bringing demand more in line with supply, he said.
"Such an event would cause most investors to view investment in polysilicon makers as significantly less attractive versus today's level," Blansett said.
For the second quarter, Blansett expects profit of $1.04 per share.
Shares fell $1.14 to $68.26 in premarket trading.
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