Wednesday, June 9, 2010

"The Lead Acid Battery Sector Is Starting A Bull Run" (CHP; ENS; XIDE)

Words I never thought I'd post.
A Twofer from AltEnergyStocks:
It's been a very good week for companies in the lead-acid battery sector and from all indications the fun is just beginning. Unlike most market sectors, the principal players in the lead-acid group report on a fiscal year basis instead of a calendar year basis. Enersys (ENS) and Exide Technologies (XIDE) both use fiscal years that end March 31st, and C&D Technologies (CHP) uses a fiscal year that ends January 31st. That makes the first two weeks of June a busy time as Enersys and Exide report annual results and C&D reports first quarter results.

In its earnings release on Tuesday, Enersys reported net income of $17.8 million for the quarter, or $0.36 per share, and net income of $62.3 million for the year, or $1.28 per share. Revenues for the year were $1.58 billion. The earnings for both the quarter and the year exceeded expectations and the subsequent conference call made it clear that management believes earnings will continue improving as the global economy recovers and the company realizes the planned economies from restructuring investments that impaired earnings over the last couple of years. The closing price prior to the earnings release was $21.78, as compared to a price of $24.47 on Thursday. Given its strong earnings and a bright outlook for continued growth and improved margins, I expect Enersys to surpass its 52-week high of $27.23 before year-end.

An even bigger surprise was unveiled on Thursday when Exide reported net income of $40.4 million for the quarter, or $0.53 per share, and a net loss of $11.8 million for the year, or ($0.16) per share. Revenues for the year were $2.69 billion. The earnings for the quarter exceeded expectations by a wide margin and came as a huge surprise for people who don't follow Exide closely. As a result the stock gapped up sharply on very heavy volume and gained about 27% before closing at $5.41. ...MORE
For background, a truly awesome piece of research from a couple weeks ago:

Opportunities in the Energy Storage Sector
Since I discussed dilution risks in emerging energy storage companies last week, today I'm going to shift gears and offer an overview of the opportunities that have developed in larger pure-play energy storage companies since last September. The following graph tracks the 18-month composite performance of the five categories I defined in Battery Investing for Beginners, Part II and shows how they stacked up against the Dow Jones Average.

5.23.10 Composite.png

To understand what's happened in the storage sector over the last 18 months it's helpful to remember a few key dates. First, we had the November 2008 crash and the March 2009 retest of the lows. The market started to turn in the spring of 2009 and the storage sector fared better than most because Federal stimulus legislation included billions in direct and indirect subsidies that took final form in August when the President announced $1.25 billion in ARRA battery manufacturing grants. Those grants, in turn, laid the foundation for the successful A123 Systems IPO (AONE) that went off in September. Since September, the euphoria has faded as the market came to grips with the fact that building new factories takes time and changes in the cleantech revolution will be slower than they were in the IT revolution. The market is still adjusting to the reality that storage is governed by a different set of rules, but that adjustment period has created some interesting opportunities for investors who want to position their portfolios for a coming tidal wave of change.

In January of this year I introduced the concept of the Hype Cycle in an article on vehicle electrification and used a graph that TIAX LLC presented at the Plug-in 2008 Conference. I've recently found a generic Gartner Group version of the graph that describes the stages of the hype cycle in greater detail.

Gartner HC Slide.jpg

While opinions on where particular technologies fit on the hype cycle graph vary, I believe a macro-economic trend that's best described as a "storage supercycle" is just beginning. In IT terms, today is like the late-70s and headline grabbing energy storage applications like plug-in vehicles, frequency regulation and short-duration renewable power integration are analogs of the IBM 5110, the TRS 80 and the Apple II. In effect, the current headliners are little more than timid baby steps in an economic and technical supercycle that will take a couple decades to unfold before reaching its true peak of inflated expectations....MUCH MORE