Capstone Turbine: Thinking outside the micro box
If you think the market for hybrid and electric vehicles will explode in the near future and you want to be on board for the ride, or you’re convinced that we’ll still need to rely on hydrocarbon fuels for the foreseeable future and want a stock that gets you into offshore drilling, look no further than Capstone Turbine Corp. (Nasdaq:CPST).
Founded in 1988, Capstone makes microturbines that help in the stationary power distribution generation needed for combined heat and power (CHP) applications, which can be used as primary or backup power sources and a number of Class A office buildings are ordering them.
Because the microturbines require little maintenance, two of Capstone’s biggest customers are Brazilian and Mexican national oil companies Petrobras and Pemex, who use the microturbines for CHP applications on their unmanned offshore drilling platforms.
Other key markets for Capstone’s microturbines include hybrid electric buses and multiple biogas applications. New markets beckoning for microturbine product, according to the company, are the Class A truck market, which is currently squeezed by high diesel prices and stringent emission standards, and the solar energy market, where the microturbines could be powered by solar energy during the day and other fuels at night.
The company’s air cushion technology, which eliminates the need for lubrication and reduces maintenance to near zero, has proven so successful that the turbines are getting to be less micro. Capstone will begin delivering a new 200-kilowatt system in September, adding to the current 30 and 65-kilowatt systems. The Chatsworth, Calif.-based company has already taken its first order for a 1,000-kilowatt system, which can be linked together to form systems as big as 10 megawatts.
For Sanjay Shrestha at Lazard Capital, this means the company’s order backlog is more significant at the moment than earnings. Skyrocketing raw material costs widened the loss for the fiscal fourth quarter ended March 31, to $0.07 per share, compared with a loss of $0.06 for the year-ago period.
Fiscal 2008 sales were $31.3 million, compared with fiscal 2007 sales $21 million. Order backlog, meanwhile, rose to $27.9 million at the end of the quarter
Plus, Shrestha says, this figure understates the order backlog, because orders for services and parts add up to an additional $10 million. Lazard raised its revenue forecast for fiscal 2009 to $58 million from $50 million because of the swelling order backlog.
Analysts at Merriman Curhan Ford were also enthusiastic after the company’s June 12 conference call. The strength of pre-orders on the bigger products prompted these analysts to calculate a fair value for the stock at $4.70 to $5.30 (compared with Monday’s closing price of $3.41), and to reiterate their “buy” rating.
With the expanded product line, the company feels it is well positioned to benefit from the mounting interest in green and clean technology. “I view Capstone as an excellent power generation solution for a changing world because, unlike solar and wind technologies. Our efficient combined heat and power systems reduce greenhouse gas and criteria pollutant emissions 24 hours a day, 365 days a year with or without a sun or wind resource and even without the benefit of an electric grid,” CEO Darren Jamison said on the June conference call.
Capstone went public in 2000. Over the past couple of years, new management has moved in and pushed the company into fresh product lines to speed growth and head toward profit. The $0.25 per share loss in fiscal 2008 compares with a loss of $0.32 in 2007 and another loss of $0.50 in fiscal 2006.
For fiscal 2009, ending next March, the Merriman analysts are forecasting a $0.14 per share loss for the year. On current projections, they see Capstone at about break-even in fiscal 2010 and moving into the black in fiscal 2011 with earnings of $0.15 a share. Consensus estimates are virtually the same.
The four analysts covering Capstone have all deemed it a “buy,” including one “strong buy.” The mean target for the stock is $5.25, compared with the 52-week low of $0.91 last August and the 52-week high of $4.42 last month.
About the Author
Contributing author Darrell Delamaide is a freelance writer and editor based in Washington, D.C. He has specialized in business and finance over a long career, writing for Barron's, Dow Jones, Institutional Investor, and Bloomberg, among others.
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