Stock Analysis: Broadwind Energy (BWEN)
Broadwind energy was a company that used to be focused as a pure wind turbine company. However, when the alternative energy bubble burst in 2010, Broadwind was ill-prepared to address it. Since then, the company has gotten a new CEO that has transformed the company to be a little more diversified such that in addition to towers, they also provide gearing services - making and servicing customized gearing solutions for various companies, with the biggest focus in energy (drilling for oil and gas) and machinery (Caterpillar is their largest gearing customer). This company is unequivocally a cyclical company, needing a strong economy to get strong business. The stock is also very speculative right now, with a market cap of just over $140 million. It's easy to make this stock move either direction, should anyone want to, so a strong constitution is needed to even consider, much less own this stock. The company has done a pretty decent job in building some visibility. They have all of 2014 tower build capacity booked for this year already and half of 2015 is already booked as well, with 2015 expected to be filled by 3rd quarter. Increases in natural gas prices has also started to create more demand in the gearing area and between the cold US winter and tensions in eastern Europe, gas prices may stay around these levels for a little while, which encourages more drilling for gas and more demand for gearing products. Additionally, the economy continues on what appears to be a slow, but continuous growth cycle, which is likely to boost industrial activity. Last year, the CEO and CFO both made a stand, buying about 20 thousand shares of stock with their personal money. This creates a perception of a line in the sand stating they know the company is doing well and they're willing to show how strongly they feel about it. The down side to this is that purchase was around when the stock was at $5.30 - almost half of what the price of the stock was at today's opening. That certainly leaves room to fall. Another big concern is the same gearing division that was supposed to help diversify the company. The expansion of just creating gears for towers to creating custom gearing solutions hasn't gone as smoothly as the company would desire and they called it out today. There's lots of room for improvement and this year, it's a major focus, though they only expect it to result in about 5% gains for 2014. Growth is expected to accelerate after that. The gearing division is doing so poorly, they're cutting 20% of the jobs in that area between restructuring and the reduced demand they're seeing. Keep in mind that some of this reduced demand is from less drilling activity and if oil prices stay suppressed as they've been during this first quarter of the year, the decreased demand is likely to continue for awhile. The final concern is the dependency this business has on the government. This business gets a nice lump of money from the government in the form of grants and tax credits. It was the expected loss of this credit in 2012 that drove the stock down to a penny stock, before it went and did a 10 for 1 reverse split. Shortly afterwards, the government extended the credit until the end of 2014, but it happened so late, that barely any orders were ever placed for 2013 due to budgeting and timing. Again we face the same kind of risk this year. The executive team believes that an extension will be passed, however if it isn't, the cost between wind and natural gas is close enough to not hurt their business too much.
The past year:
I know I already covered much of how the company performed last year as a part of the overview above. However, I haven't talked about the stock performance, which is something to behold. BWEN stock rose 337% which is a great way to make money on a stock quick, if you're buying in at the lows. Sadly, I can't say I was ever a buyer in the last year. I've held this stock for a long time, for way too much time in fact. As a result, it's become a painful learning lesson for me. Again, tower orders were strong and the company has a backlog. Gearing has a backlog, but they're not performing terribly well. Seems like a company with a bit of a case of Jekyll and Hyde. I will give the executive team credit where it's due, though. They've executed their restructuring plan as expected and have done an effective job at turning the company around. However, they've yet to post a profit.
2014 Prognostication:
I'm finding it hard to believe this stock is going to have anything near what it did last year. The good news is that today, in their fourth quarter earnings call, they stated they believe and are focused on returning a profit this year. In fact, they showed an expectation of around $0.16 for earnings on the year. Based upon what I heard, I think this is a fair estimate, though management tried to make it sound like this could be a conservative number. If the planets align, things really could get better, however, I'm not as certain as they are that this will happen. You never know with the government and that's one of the key ongoing factors at this point. All signs point to 20% growth, which is certainly nice, however, the current stock price is set at 60 times next years 16 cent mark. If you price things on earnings for 2015 and 2016, at that point you might start finding the price fairly priced. Based on the quarter announcement that just disappointed stock holders (despite most of the miss directly related to one time expenses), I can see the stock pulling back a little. However, over the longer term, I anticipate this stock to rise some. The key is going to be last quarter - both on the government's decision around renewable energy assistance as well as orders that get placed. If things go sour, $5 can be here again before you know it.
My stock ownership plans:
I've owned this stock longer than I ever should have. I would love to be able to make the right moves and at least recoup my unrealized losses right now, but it's more likely that I'll take the tax loss at some point. My current price target for this stock is about $12.50 and even that feels high to me right now. There's just too much uncertainty looking out towards 2016 to believe this growth trend will continue yet. However, I will say that I believe the prospects are much better this time than back in 2012. We're at a point where the US economy is improving and with it, the global economy. It's not huge or consistent, but things are generally better overall and somehow seem to continue to improve, though it's hard for individuals to really feel that way. I may buy some shares of this stock if it pulls back below $9, though I'm thinking more around 7. I actually believe it'll be hard for the stock to move lower than that point and I would leverage that as an opportunity to recover some of what I had lost. The other option under consideration is to just sell it off now and let it go. At this point, BWEN is 2.1% of my portfolio.
The past year:
I know I already covered much of how the company performed last year as a part of the overview above. However, I haven't talked about the stock performance, which is something to behold. BWEN stock rose 337% which is a great way to make money on a stock quick, if you're buying in at the lows. Sadly, I can't say I was ever a buyer in the last year. I've held this stock for a long time, for way too much time in fact. As a result, it's become a painful learning lesson for me. Again, tower orders were strong and the company has a backlog. Gearing has a backlog, but they're not performing terribly well. Seems like a company with a bit of a case of Jekyll and Hyde. I will give the executive team credit where it's due, though. They've executed their restructuring plan as expected and have done an effective job at turning the company around. However, they've yet to post a profit.
2014 Prognostication:
I'm finding it hard to believe this stock is going to have anything near what it did last year. The good news is that today, in their fourth quarter earnings call, they stated they believe and are focused on returning a profit this year. In fact, they showed an expectation of around $0.16 for earnings on the year. Based upon what I heard, I think this is a fair estimate, though management tried to make it sound like this could be a conservative number. If the planets align, things really could get better, however, I'm not as certain as they are that this will happen. You never know with the government and that's one of the key ongoing factors at this point. All signs point to 20% growth, which is certainly nice, however, the current stock price is set at 60 times next years 16 cent mark. If you price things on earnings for 2015 and 2016, at that point you might start finding the price fairly priced. Based on the quarter announcement that just disappointed stock holders (despite most of the miss directly related to one time expenses), I can see the stock pulling back a little. However, over the longer term, I anticipate this stock to rise some. The key is going to be last quarter - both on the government's decision around renewable energy assistance as well as orders that get placed. If things go sour, $5 can be here again before you know it.
My stock ownership plans:
I've owned this stock longer than I ever should have. I would love to be able to make the right moves and at least recoup my unrealized losses right now, but it's more likely that I'll take the tax loss at some point. My current price target for this stock is about $12.50 and even that feels high to me right now. There's just too much uncertainty looking out towards 2016 to believe this growth trend will continue yet. However, I will say that I believe the prospects are much better this time than back in 2012. We're at a point where the US economy is improving and with it, the global economy. It's not huge or consistent, but things are generally better overall and somehow seem to continue to improve, though it's hard for individuals to really feel that way. I may buy some shares of this stock if it pulls back below $9, though I'm thinking more around 7. I actually believe it'll be hard for the stock to move lower than that point and I would leverage that as an opportunity to recover some of what I had lost. The other option under consideration is to just sell it off now and let it go. At this point, BWEN is 2.1% of my portfolio.
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