Author: Joseph Agresti
Covestor model: China & India
Disclosure: Long GTAT
Once upon a time, GT Advanced Technologies (GTAT) was called GT Solar with the symbol SOLR. And it was a great and profitable company since its July 2008 IPO.
At the time, it was the leading global provider of specialized manufacturing equipment and services needed to make solar wafers, cells and modules and polysilicon.
Then in July of 2010 the company purchased Crystal Systems Inc., a maker of sapphire material. Here is a snippet from the press release:
“Under the terms of the agreement, the purchase consideration consisted of approximately $24 million in cash, 5.4 million shares of GT Solar common stock and a $21 million cash earn-out. The cash earn-out provision is based on the attainment of certain financial and technical targets. Crystal Systems is a profitable company with expected revenues of approximately $16 million for the 2010 calendar year.”
Finally on August 8th of 2011 GTAT issued a press release announcing its name change and stock symbol change from GT Solar (SOLR) to GT Advanced Technologies.
In the press release, we learn an interesting bit of information about the Crystal Systems acquisition just 13 months prior.
In July 2010, the company entered the fast-growing LED market through its acquisition of Crystal Systems, Inc., a pioneer in the field of crystallizing sapphire material for a wide range of industries.
GT is both a producer of sapphire material as well as a supplier of Advanced Sapphire Furnaces (ASF) that it sells to companies that produce sapphire material.
Since the company introduced its ASF in December of 2010, it has booked nearly $1 billion in orders, quickly establishing itself as a leading provider of sapphire crystal growth equipment.
So for our review, GT acquired Crystal Systems for around $100 million and in 13 months booked $1 billion in orders for the newly acquired segment. That segment now represents almost 44% of the company's $1.6 billion backlog.
Glancing at the latest earnings transcript also tells us that the portion of the backlog dependent on PV is less than 9% with the remainder of the backlog in polysilicon, which has uses in many industries.
Now that our history lesson is complete, we should look forward to what the business can do for shareholders going forward.
Our polysilicon order pipeline remains active as well and we are competing for several projects in the Middle East and Southeast Asia that could represent an additional $400 million to $500 million in potential sales. One of our primary competitors in these markets recently filed for insolvency protection, which we believe enhances our chances to prevail should these deals move forward.
By my rough calculations each $100 million in orders represents 12 cents in earnings per share. Some of the current backlog will be realized in 2013 and some 2014, but the picture nonetheless is a positive one.
EPS estimates for 2013 are $1.35 and $1.30 for 2014.
I believe these numbers represent the absolute bottom in earnings potential because of the quote above.
Management has taken a very conservative approach looking to the future and analysts have been overly bearish on the stock. It trades at 4 times forward earnings, even though the company has shown it can grow revenues and earnings at an exponential rate.
Here’s what CEO Thomas Gutierrez had to say on the latest call:
Now the projects in the Middle East, as we've come to really understand them, take some time to develop because I think this is an area where the people that we're dealing with are technically competent. They have very deep pockets, but they're also very careful about who they invest with and the nature of the technology that we put in place. And so, I mean, our rationale for actually mentioning this at this time and mentioning the size of it, is because our confidence has increased, that the opportunities are not only real but that our opportunity to win them, particularly in view of the fact that our only competitor in that part of the world has basically gone into insolvency. We feel that it's a pretty good opportunity.
As you may have noticed, I have taken much from the text in this article from the most recent earnings transcript. I believe it is very important for investors to review these to reveal these types of gems during Q&A sessions.
If the CEO says they have a pretty good chance of landing an order that could increase EPS by 37%, then that is a piece of information I would like to know.
If GTAT can land this order, I can see EPS at $2 per share in 2014.
I would also expect that if GTAT did land this order that all of the current short interest in the stock (29 million / 118 million float) would head for the hills.
Currently trading at 4 times forward earnings with the potential for EPS growth of 40% means that value investors as well as growth seekers should take notice.
GT isn't just a solar company anymore.
The China & India Model holds GTAT.