Thursday, February 3, 2011

Earnings: Power-One to Report After Market Close; Auriga's Bachman Likes it but Warns of Volatility (PWER)

The stock is trading at $11.63, down 16 cents.
Mark Bachman is one of the handful of analysts who seem to understand the abnormal psychology of the alt-energy space.

Because they aren't real businesses sans the subsidies, mandates etc. there is an overlay of neuroses that an analyst has to cut through to discern something close to reality. It's not as simple as looking at an average free-market manufacturer and saying "Saaay, their receivables are growing faster than revenues".
Perhaps there is a cash-flow crunch coming or maybe the company has been 'channel-stuffing' or better yet (for the nimble analyst) you've just found something akin to 1973's Equity Funding fraud which analyst Ray Dirks parlayed into a career for the next twenty years (until, in turn, the SEC shut him down).

In the alt-energy space you have CEO's who won't or can't admit that without the police powers of the state as enforcer that said CEO really isn't worth the billion dollars in stock options that he's been awarded.

Bachman seems to understand this stuff.
On December 21 he initiated coverage of Power-one with a 'Buy' rec. and a price target of $14.
The stock closed at $11.00 that day and immediately began a decent to a Jan. 3 intraday low of $10.10.
Here's the chart for the last two months via BigCharts:

As you can see, the stock has put on a 12% spurt over the last three days.
On Jan. 31st Auriga reiterated the Buy and price target and included a warning:
Analyst Comments – Auriga’s Mark Bachman reiterated his BUY rating on Power-One (Nasdaq:PWER) and $14 price target, noting that near-term sales should be strong as well as the impact of expansion plans on margins.
Key Takeaways:
·         Expects near-term volatility in stock;
·         Expects strong Q4/1Q sale, maintaining Q410 renewable sales estimate and increasing Q111 estimate slightly;
·         Margins increasingly more important – opex estimate increasing and modeling 500 basis point GM decline in Q111 to account for price declines and new facility costs;
·         Power business should continue to improve;
·         $14 price target based on 8x FY12 EPS estimate of $1.79 – in line with peers and compares to 3 year media of 15x

-from SmallCapPulse

Back in September we warned that PWER had gapped up on the two prior earnings releases only to trend lower and fill the gaps over the subsequent days. The day of the October release the stock gapped up 20% and filled the gap that very day!

The reason for all this history is my fear that with the recent run-up the stock is set up to disappoint even though the company has a wonderful report.

Here's a podcast of the Bloomberg Radio interview with Bachman done on Feb. 1st.
He discusses PWER and what he calls his favorite name in the space, Renesola.

And how do we know PWER will have a fine report?
For one thing it is becoming habitual with them.
For another we have this from Greentech on Monday:
Power-One Quietly Reaches 2nd Place in Inverter Market
From ninth place to second place market position in two years