by Debra Fiakas CFA
In early October 2013, Broadwind (BWEN: Nasdaq) announced over $100 million in new wind tower orders, tipping the value of orders received in the year 2013 over the $300 million mark. Wind energy has been a fickle market to pursue, alternatively showing great promise as policy makers show support for renewable energy sources and then sinking as cheap natural gas substitutes flood the market.
Broadwind’s expertise is in gearing of various kinds. In addition to supplying gearboxes for wind turbines, the company offers maintenance services to tower owners. Oil in gearboxes must be changed regularly and wind blades must be checked and replaced regularly. The company applies its experience in steel fabrication to more than just wind towers. Broadwind also builds large, complex fabricated steel structures for use in the aerospace and automotive industries, including crane masts, booms, and engine frames.
Revenue has been building back up since the 2009-2010 recession, but Broadwind has yet to report a net profit. The net loss in the most recently reported twelve months was $14.8 million on $197 million in total sales. What is even more concerning is that the company has burned a fair amount of cash to keep operations going – $23.2 million over the last three fiscal years alone. However, in the most recent twelve months the company managed to reverse the cash drain, generating a net $13.6 million in cash from operations.
Cash on the balance sheet at the end of June 2013 was $17.9 million – about enough to keep Broadwind going for a while even if it cannot maintain positive cash flow. There is $4.3 million in debt on the balance sheet, well within reason to pay off with current cash resources.
There appears to be some optimism that better times are ahead for Broadwind. There are only two analysts with published earnings estimates for Broadwind. They appear to be in agreement on the potential for profitability in 2014. The consensus estimate is $0.15 in earnings per share in 2014 on $267.5 million in total sales.
BWEN is trading at 66.0 times forward earnings (2014). That might seem dear, but this and next year are still transition years for Broadwind. The shares have built up considerable momentum in recent weeks, after languishing for some time under the $5.00 price level. The stock seems poised to grow into its valuation.
Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.
Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.