Broadwind Catches a Breeze

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by Debra Fiakas CFA

Two weeks ago wind tower builder Broadwind Energy (BWEN:  Nasdaq) announced $28 million in new orders.  Plans are to deliver all the towers within the year, giving a nice boost to the top-line for a company that recorded $170.3 million in sales over the last reported twelve months, well below the same period the year before.  In addition to wind towers, the company produces gearing mechanisms used in the oil, gas and mining industries.  Unfortunately, demand from these customers has been weak in recent periods.

The company has had some difficulty in establishing a profitable business model.  Losses for Broadwind have been epic in size and by the end of the last full fiscal year 2015, the retained deficit had ballooned to $308.8 million.  However, the last two reported quarters carried a glimmer of hope for the company as both ended solidly in the black.  The two analysts who have published estimates for Broadwind expect the company to reach $184.7 million or $196.7 million in total sales (an average of $190.7 million) in the current fiscal year.  They are also expecting a profit, at least in terms of cash earnings, of $0.12 per share.

Broadwind has survived its many years by generating positive operating cash flows even when reported earnings were negative.  In the twelve months ending September 2016, the company converted 14.8% of sales to operating cash flow.  Performance could get even better going forward.  The company has a cost reduction strategy in place that is still expected to realize new efficiency in continuing operations.
The decision to jettison the unprofitable Services segment is also an important step toward a healthy business model.  Most of the assets related to the Services segment have already been sold by the end of 2015, but $513,000 still needs to be mopped up.  What remains of the Services segment resulted in a net loss of $908,000 in the first nine months of 2016.  

Broadwind remains a small company with many challenges in its markets, but the company has made considerable progress toward becoming a growing and profitable business.  The oil and gas industry has come through a difficult period.  With a change in political thinking in Washington DC, the tight and squeaky shoe may now be on the foot of renewable energy. 

Wind energy has made great strides over the past couple of years.  By the end of September 2016, there was 75,700 megawatts of wind power generating capacity installed in the U.S.  Wind now represents 4.7% of the total electricity generating capacity in the U.S.

It is not likely that even the myopic views on the environment and climate issues held by the Trump administration can reduce the installed presence.  However, new projects could be in jeopardy if capital flows dry up as investors shy away from sectors that seem out of favor in the Oval Office.  Thus even though Broadwind just got a boost in new orders for wind towers, investors should temper expectations.

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.


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