Thursday, May 8, 2008

Energy Conversion Devices (ENER) - Is the Turnaround Finally Here?

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Energy Conversion Devices (ENER) is an interesting tale - this has been for many many years a "hope" stock i.e. more promise than execution - I remember the hoopla surrounding it at the turn of the century ... the last time people were all hyped up about alternative energies (at the time the big fuss was about new wave car batteries and the like). This company has morphed over the years with a confusing array of business lines (trying to decide what it wanted to "be"), but recently has added a newer and more business savvy executive team, and while they still have a few business lines .... the excitement is their solar business, which has turned into the dominant line at the company. Much like First Solar (FSLR), ENER has a thin film process so by staying away from the polysilicon shortage issue they have some potential to sidestep some issues currently facing the rest of the industry. The company is out with earnings today and put in a surprising act, instead of a 6 cent loss, we have a 17 cent gain. So perhaps the long awaited and promised turnaround is finally here. We'd like to see another quarter or so of this to call this a confirmed turnaround but speculators could care less about that... the stock is up 26% in premarket. This is a name I've been keeping 1 eye on, but with results like this it's time to put both eyes here.... another quarter like this and you'll get Cramer talking about how this is the next First Solar.

Revenue growth in solar was fantastic and gross margin exploded 11% higher... that's a heck of an achievement. As one of the great philosopher's of our time would say... "That's hot." I have to do some homework with the guidance but on first glance the 2008 full year loss estimate and 2009 profit look like they vastly understate profit potential; which is my favorite type of story. We'll be interested on a pullback, although the hype on a name like this could carry this one very far in a quick time.
  • Total consolidated revenues for the quarter were $70 million, up 24 percent from second quarter revenues of $56.4 million, and 155 percent higher than third quarter fiscal 2007 revenues of $27.4 million. Solar product sales were $64.9 million, a 31 percent sequential increase and a 193 percent increase over the prior-year quarter.
  • Net income for the third quarter was $7.0 million, or $0.17 per share, compared to a net loss of $5.4 million, or $0.14 per share, in the second quarter of fiscal 2008, and a net loss of $6.9 million, or $0.17 per share, in the year-ago period. Third quarter results include preproduction costs of approximately $751,000 and restructuring charges of $2.4 million, representing $0.08 per share in the aggregate.
  • Gross margin on product sales in the solar business was 30.7 percent in the third quarter, compared with 19.2 percent in the second quarter. The gross margin improvement was driven by better factory utilization and yield, and favorable customer/product mix.
  • United Solar Ovonic produced 21.6 MWs in the third quarter and 47.4 MWs for the first nine months of the fiscal year. The company confirmed its plans to expand and add 120MWs of additional nameplate capacity to its existing Greenville facilities. ECD will be able to internally fund this expansion through available funds and cash flow from operations. This previously announced expansion will increase the company's nameplate capacity to approximately 300MWs by the end of fiscal year 2010.

Guidance

  • Total consolidated revenues are expected to be between $73 and $78 million for the fiscal fourth quarter ending June 30, 2008 and between $246 and $251 million for fiscal 2008. Solar product sales for the fourth quarter are expected to be $68 to $73 million, and $222 to $227 million for fiscal 2008. For the fourth quarter, ECD expects it will maintain the 30 to 31 percent gross margin it achieved in the third quarter. Restructuring costs are expected to be between $2 to $3 million for the fourth quarter and $10 to $11 million for fiscal 2008. Preproduction costs are expected to be approximately $1.5 to $2 million for the fourth quarter and between $7 and $8 million for fiscal 2008.

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