Stock Analysis: Broadwind Energy (BWEN)
Notes:
Stock Ratings: 1 = buy at current stock prices, 2 = buy on a 5-10% dip in stock price, 3 = sell on a 5-10% increase in stock price, 4 = sell at current stock prices to raise cash. Ratings are based upon 12-18 month outlook on stock direction and not necessarily related to moves I make due to financial positioning.
Stock Ratings: 1 = buy at current stock prices, 2 = buy on a 5-10% dip in stock price, 3 = sell on a 5-10% increase in stock price, 4 = sell at current stock prices to raise cash. Ratings are based upon 12-18 month outlook on stock direction and not necessarily related to moves I make due to financial positioning.
This morning, Broadwind Energy announced their fiscal second quarter results for 2014. The result for the last quarter were strong, however, they also guided down slightly. This makes for a somewhat mixed bag to sift through. Earnings were $0.12, well above the $0.09 estimates. Revenues came in at $68.4 Million, again above estimates. In addition to this, margins were up over 4% year over year, and the Gearing business had much improved numbers in both financials and overall efficiency compared to the first quarter. Though the gearing segment still does not make a profit, it's well diversified and making significant improvements as would be needed to be a turn-around stock.
Orders for the quarter were dominated by the Gearing group with $18.3 Million in orders. Towers only had $900,000 in orders on the quarter as the $34 Million in orders was announced just after the end of the second quarter. Backlog for the second quarter is up 56% compared to this time 2013 and the $34 Million in tower orders is a strong start to the third quarter. Finally, services orders are also up 69%. This group, too, is not turning a profit, but is definitely turning around as quoting activity is up and these orders increases are the at the highest rates since 2012 - improving, however not great yet.
The wind market itself is a mixed bag of factors. Private energy consumers like data centers are looking to have more eco-friendly energy. Additionally, Investment groups similar to MLPs are popping up to help make the cost of capital investments easier to bear. On the negative side, one state has frozen a law that would've required 25% of energy created be renewable and the US government continues their ways of governing by inaction regarding the PTC. There's still hope the PTC could get passed in the fall, however, I sense confidence in it is waning.
The balance sheet is clean with cash and assets at 2.6 times total debt and this ratio is growing. They haven't touched their revolving credit and the company is finally making money for its first time ever. There was talk about potential capital investments that could be made next year to give a 10%-20% boost to tower productivity, but that decision will be dependent upon continued orders growth. Additionally they have a $750,000 reserve set aside that is meant for settling with the SEC regarding 2009 financial statement issues that have been getting investigated over the last 4 years. Getting this out of the way will only help build confidence in the company and the stock.
Finally, there's the future guidance. This is where things get a little disappointing. Revenue has been guided down to a $255 - $260 Million range from $260 - $270 Million. This is despite gross profit margins being higher - at 12%. This means they're not expecting as many orders over the coming 2 quarters. The fourth quarter is seasonably slower and they're saying that the third quarter will have lower results due to tower model conversions. Revenue estimates for the fourth quarter are $65 - $68 Million with Earnings at $0.02 - $0.06 per share..
I believe the key here continues to be future growth. They're showing an ability to turn things around and make a profit, however, some of this is due, in part, to grants and low-interest loans. We need to see continued growth in tower and gearing orders. So far, it looks good, but I don't have much for visibility past 2014 with the PTC looming overhead. At this point, I think these risks are priced into the stock and I give the stock a rank of a 2 with a price target of $10.50. I believe this stock is worth taking the speculative risk and buying it below $8.50. However, if it goes below $8, you have to get out because it has no technical support until below $6
Orders for the quarter were dominated by the Gearing group with $18.3 Million in orders. Towers only had $900,000 in orders on the quarter as the $34 Million in orders was announced just after the end of the second quarter. Backlog for the second quarter is up 56% compared to this time 2013 and the $34 Million in tower orders is a strong start to the third quarter. Finally, services orders are also up 69%. This group, too, is not turning a profit, but is definitely turning around as quoting activity is up and these orders increases are the at the highest rates since 2012 - improving, however not great yet.
The wind market itself is a mixed bag of factors. Private energy consumers like data centers are looking to have more eco-friendly energy. Additionally, Investment groups similar to MLPs are popping up to help make the cost of capital investments easier to bear. On the negative side, one state has frozen a law that would've required 25% of energy created be renewable and the US government continues their ways of governing by inaction regarding the PTC. There's still hope the PTC could get passed in the fall, however, I sense confidence in it is waning.
The balance sheet is clean with cash and assets at 2.6 times total debt and this ratio is growing. They haven't touched their revolving credit and the company is finally making money for its first time ever. There was talk about potential capital investments that could be made next year to give a 10%-20% boost to tower productivity, but that decision will be dependent upon continued orders growth. Additionally they have a $750,000 reserve set aside that is meant for settling with the SEC regarding 2009 financial statement issues that have been getting investigated over the last 4 years. Getting this out of the way will only help build confidence in the company and the stock.
Finally, there's the future guidance. This is where things get a little disappointing. Revenue has been guided down to a $255 - $260 Million range from $260 - $270 Million. This is despite gross profit margins being higher - at 12%. This means they're not expecting as many orders over the coming 2 quarters. The fourth quarter is seasonably slower and they're saying that the third quarter will have lower results due to tower model conversions. Revenue estimates for the fourth quarter are $65 - $68 Million with Earnings at $0.02 - $0.06 per share..
I believe the key here continues to be future growth. They're showing an ability to turn things around and make a profit, however, some of this is due, in part, to grants and low-interest loans. We need to see continued growth in tower and gearing orders. So far, it looks good, but I don't have much for visibility past 2014 with the PTC looming overhead. At this point, I think these risks are priced into the stock and I give the stock a rank of a 2 with a price target of $10.50. I believe this stock is worth taking the speculative risk and buying it below $8.50. However, if it goes below $8, you have to get out because it has no technical support until below $6
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