Earnings Season For Ten Clean Energy Stocks
Tom Konrad CFAThe third quarter earnings season has been quite eventful for my Ten Clean Energy Stocks for 2013 and six alternative picks model portfolios, so much so that writing about them has taken a back seat to keeping up with the announcements. There were a number of earnings disappointments and earnings announcements which were in line with my expectations but the market treated like disappointments. These resulted in an overall decline of 2.5% for the portfolio since the last update, even as my industry benchmarks, the Powershares Wilderhill Clean Energy (PBW) and my small cap benchmark (IWM) were up 1.0% and 3.9% over the months since October 15th.
The only good news came from ground-source heat pump manufacturer
Waterfurnace Renewable Energy (TSX:WFI,
OTC:WFIFF.) Waterfurnace reported earnings up 51% compared the
previous-year period. The strong results arose from a large
increase in sales to Canada, as that market recovered from the end
of a federal incentive program in March 2012. Also
benefiting earnings was a decrease in operating expenses due to
successful cost reduction efforts in 2012. Analysts at
Canaccord Genuity raised their price target for Waterfurnace from
C$25 to C$29 in response to the results. Waterfurnace rose
18% for the month.
Leading environmental services firm Waste Management (NYSE:WM)
also rose significantly, up 10% for the month, despite the fact
that earnings were in line with analysts' expectations.
While I consider Waste Management a long term hold as a reliable
dividend stock, I've taken advantage the recent price appreciation
to increase my income from the position by selling covered calls.
The market reacted negatively to strong earnings at utility
demand-side management contractor Lime Energy (NASD:LIME).
The company has been making excellent progress shedding
unprofitable business lines and focusing on its utility business,
with revenue from continuing operations jumping 55% and gross
profit up 125% compared to the comparable quarter a year
ago. Unfortunately, liquidity still remains a significant
issue at Lime, despite its September raise of $2.5 million and
conversion of debt into preferred stock in September. The
liquidity section of Lime's third
quarter report states, "While it is possible that our
current capital will be sufficient to carry us until we reach
profitability, it is also possible that we will need to raise
additional capital before our cash flow turns positive and we are
able to internally fund our operations."
Investors are most likely selling in anticipation of another
round of funding which could further dilute existing shareholders.
The company is fortunate to have a number of large shareholders
who see the potential of its utility business and have been
willing to repeatedly step up to cover its cash needs. Given
the strength of its utility business, I anticipate that they will
only need to come back for one more round.
Although this is the fifth consecutive quarter that Ameresco has missed earnings, I don't think there is anything fundamentally wrong with its business model. Navigant predicts that the energy service business will grow 8% next year and reach $8.3 billion by the end of the decade from $4.9 billion this year. Ameresco is already seeing a pick-up in both its revenue and backlog, while rivals such as Johnson Controls (NYSE:JCI) have yet to see improvement. I took the opportunity of the sell off to add to my position.
Kandi Technologies (NASD:KNDI)
Chinese EV and off road vehicle manufacturer Kandi Technologies
has been growing its legacy off road vehicle business rapidly, but
sales of EVs have yet to take off, with only 494 sold during the
quarter. I expect the pace of EV sales to pick up
significantly in the fourth quarter. EV sales should be
driven by now that China's much-delayed subsidy for "New Energy
Vehicles" has been renewed. This seems
to favor makers of low-speed electric vehicles like
Kandi. The roll-out of a public EV sharing system using
Kandi vehicles in the city of Hangzhou should also contribute to
EV sales this quarter, as could its joint venture to build EVs
with Geely Automotive.
On the other hand, I found the announcement on October 28th that
Kandi was purchasing $30.3 million worth of batteries for the
roll-out of the Hangzhou public EV sharing system
concerning. Under the original
agreement, the batteries were to have been supplied by Air
Lithium (Lyoyang) Co. Ltd.and paid for by the local utility.
The capital-light model of getting others to pay for the most
expensive EV component, the battery, was one of the things which
attracted me to Kandi in the first place. Now Kandi seems to
be buying the batteries itself.
With current liabilities already exceeding current assets by $133 million to $89 million, I would not be surprised if Kandi has to raise more capital soon in order to increase the pace of EV sales significantly.
I still hold the short $10 KNDI calls expiring in December I
mentioned in the last update.
Alterra Power (TSX:AXY, OTC:MGMXF)Diversified renewable power operator and developer Alterra had a strong quarter, producing a profit of 3 cents a share for the quarter compared to 2 cents for the prior year. More importantly, EBITDA is rising as a result of Alterra's investment program. At C$0.30 a share, the company has an Enterprise Value of only 9-10 times 2013 EBITDA. More mature Canadian power producers trade Enterprise Values of at 15 to 20 times EBITDA. Alterra's low multiple might be understandable if it were unable to cover its debt payments, but these are comfortably below Alterra's free cash flow.
Six Alternative Clean Energy Stocks
In the interest of getting this out in a timely manner, I plan to
write a separate follow-up article discussing the results of the
stocks in my alternative portfolio.
Disclosure: Long WFI, LIME, PFB, HASI, ACCEL, FVR, AXY, WM, NFI, LXU, AMRC, PW, HTM, RPG. Short: KNDI.
DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results. This article contains the current opinions of the author and such opinions are subject to change without notice. This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.
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