PWER Off 22%: Buying Opportunity, Say Auriga, Dougherty
Shares of alternative energy equipment maker Power-One (PWER) ended down $2.49, or 21%, at $9.26 today, and are down another 5 cents in late trading, following a weaker-than-expected outlook offered last night for the current quarter and the year. The company cited inclement weather in Europe, and cuts to solar-energy subsidies in some markets, as factors constraining revenue performance.Yesterday I said "Let the stock retest the Friday low ($8.97), then we swoop".
With plenty of grist for the bear case today, some bulls came to the fore to defend the stock:
Mark Bachman, Auriga Securities: Reiterates a Buy rating and cuts his price target to $13 from $14. Bachman calls this Power-One’s “Brownout,” cutting his estimates for this year from $1.79 in EPS to $1.68, and cut his revenue estimate to $1.33 billion, in line with the company’s new forecast. The shares will prove volatile, he writes, until the inventory issue clears and it becomes easier to gauge whether the company is gaining share in the market for inverters, the product that Power-One makes. On the bright side, the company’s power division contributed $9 million in profit, which was a full four quarters sooner than he had expected. This offsets somewhat the lower contribution from the renewables business. Over time, the company can establish a higher P/E multiple in the mid-teens, he writes, versus around 7 times today, as one of the “few U.S.-based renewable names left with real and growing cash flow.”
Joe Maxa, Dougherty & Co.: Reiterates a Buy rating and cuts his price target to $14 from $16. Maxa recommends taking advantage of what he sees as a buying opportunity. On the plus side, the company gave a full-year forecast for the first time, and he thinks it’s probably “conservative,” setting up the company for “beat and raise” results this year. PWER has strong margins, he notes, is gaining market share, and the “core” solar market is expected to increase 20% or more “for several years.” Strength in Italy will offset weakness in the German market in the first half of this year, as inventory is worked down in the latter country. Sales of wind inverters should start to ramp in Q4, he believes. Dougherty’s price target is based on a 10.5 times multiple, or 6 times Ebitda, in line with its peer stocks. Maxa’s new estimates are $275 million and 27 cents for Q1, down from $320 million and 35 cents previously. For the year, he sees $1.2 billion and $1.17 in EPS, down from $1.3 billion and $1.36. For 2012, he’s modeling $1.4 billion and $1.33, down from $1.5 billion and $1.50....MORE
If you can grab some at close to that price and if you pick up $4-5 over the next year, you've beaten 85-90% of all hedge funds, and done it unleveraged.
There are two if's in that last sentence but it's the uncertainty that allows you to think about anything greater than the risk-free rate of return (effectively zero for the 30 day T-bill).
