by Debra Fiakas CFA
US Geothermal (HTM: NYSE) has been on our radar for some time. Despite considerable accomplishment in terms of building electricity output from a portfolio of geothermal power installations, investors seem reluctant to embrace the company and its stock. Earlier this week, US Geothermal management issued its usual quarterly update on its development work, this time detailing progress in expanding capacity and improving well performance on three of its geothermal installations. Altogether an incremental 90 megawatts are under development, which would triple the current power generation capacity of 45 megawatts. The company press release was met by investors with a yawn. Perhaps most are waiting for the earnings press release scheduled for November 10th.
The consensus estimate is for a penny in net profits per share on $7.2 million in total sales for the quarter ending September 2016. Compared to the same quarter last year, that prediction represents flat earnings on slightly higher revenue. US Geothermal appears to have done a good job of conditioning its analyst following to the current potential in sales and earnings. At any rate, the company mostly meets the consensus expectation and rarely exceeds the earnings per share hurdle by more than a penny.
If investors are not willing to bid the stock above the $1.00 price level, the company is going to force the stock to whole dollars. The day before the earnings announcement a 1-for-6 reverse split will be executed, leaving the stock price quoted at about $3.90 per share and the shares outstanding near 18.9 million shares.
Whether HTM remains at current levels is another matter. The stock is valued at 22 times earnings expectations for 2017. That might seem a bit expensive to some investors who are not impressed by pennies in earnings per share. For those who have the patience to wait for the company to build out its power generation portfolio, the current stock price could be considered a bargain. US Geothermal has assets that, if developed, management claims could triple current output. Granted there will be capital investment requirements to reach this goal. Debt outstanding is currently $110.6 million and the debt-to-equity ratio is currently 85:1. Yet the company has hardly reached its limits in terms of raising either debt or equity capital. Current cash balances of $18.3 million imply net debt of $92.3 million, and there is more cash where that came from. In the twelve months ending June 2016, the company converted 41% of its revenue to operating cash flow, a performance metric that should cheer both creditors and equity investors.
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.