Wednesday, February 3, 2010

American Superconductor (AMSC) with Solid Report, but Market Sells it Off

The reaction to earnings this period is quite confusing.  Yesterday I saw some stocks that missed estimates jumping 6-10%, yet American Superconductor (AMSC) had a good report and sold off 10%.  Another example of why trying to game earnings is nearly impossible in the long run - even if you knew the results ahead of time, you just never know how the markets will react.   We don't have much of a position in AMSC - only a 0.4% exposure - since the selloff the last few weeks stopped us out of many long positions; specific to this stock 75% of our position was taken away @ $37.90 on Jan 21st, as the stock broke the 50 day moving average.  So the large drop didn't materially affect us, and gives us the luxury of observing how the stock acts from here. 

Technically, it's now a broken down chart, and in fact looks a lot like the S&P 500 as both the 20 and 50 day moving averages are close to converging with the shorter duration MA (20 day) about to cross below longer duration - generally a very bearish situation.  If anything, a rebound to the $37-$38 range would allow a low risk short position - with stop loss over mid $39s, which would also be a place to go long.  As would a drop to the 200 day moving average near $32; which also provides a very easy stop loss opportunity if the stock continued to break down.  In between $33 and $37, I have no advantage and it's just "white noise" trading to me, so I don't have a need to touch it there.

American Superconductor is another of these fast growing companies which is heavily reliant on one customer - always a risk.  But it is definitely in one of the spaces of growth that the market is infatuated with and I find it a less risky way to play  Chinese wind energy (all things being relative) than the current stock du jour.

A summary of earnings via AP.  Full report here.
  • American Superconductor Corp., which licenses designs and installs electrical systems, said Tuesday its third-quarter revenue nearly doubled as it boosted sales to Chinese wind turbine manufacturers.  The Devens, Mass., company, whose largest customer is China's Sinovel Wind Co., also reversed its loss and posted a profit for the three-month period that ended Dec. 31.  In addition to Sinovel, the company has received orders from four other Chinese wind turbine manufacturers in recent months, CEO Greg Yurek told analysts on a conference call.
  • Sinovel accounts for about 75 percent of AMSC's total revenue. The company -- which also offers smart grid infrastructure technologies -- has a total of 13 customers in the wind industry, of which five are in China.
  • For the quarter that ended Dec. 31, American Superconductor reported net income of $5.2 million, or 11 cents a share, compared with a net loss of $7.8 million, or 18 cents a share, in the year-earlier quarter.  [Mark's note: but their non GAAP number was 20 cents which is what Wall Street fantasy estimates are based on]
  • Revenue totaled $80.7 million compared with $41.3 million in the third quarter of fiscal 2008.
  • Yet its stock fell 9 percent in afternoon trading as investors appeared disappointed that American Superconductor increased its fiscal 2009 guidance just slightly and reaffirmed its 2010 outlook, Broadpoint Amtech analyst John Hardy said.  "The report was actually pretty positive for the December quarter," he said. "Guidance was still positive but it's what we've heard before."
  • Analysts surveyed by Thomson Reuters forecast, on average, earnings per share of 14 cents on revenue of $76.7 million. These estimates typically exclude special items.
Gross margins improved substantially...
  • Gross margin for the third quarter of fiscal 2009 was 37.5 percent, which compares with 23.2 percent for the third quarter of fiscal 2008.
CEO talk:
  • “With several wind turbine manufacturing customers in volume production, many others set to begin production over the next 12 months and new power grid orders continuing to be closed, the foundation has been set for further growth in fiscal 2010 and beyond.”
Guidance (please note AMSC has a non traditional year end, finishing March 31st):
  • For fiscal 2009, American Superconductor forecast revenue ranging between $312 million to $315 million, which was higher than its previous forecast of $300 million to $310 million.
  • For fiscal year 2010, American Superconductor has predicted revenue of more than $400 million.
Nothing stands out negative in terms of fundamentals; it just appears to be a stock with very high expectations.  To repeat what was said above, I'd be interested in being a buyer over $39.50 or nearer to $32 - both areas where we would have defined stop losses available to us.  But for technical reasons it certainly can also be a low risk near term short opportunity if it rallies a bit and then falters.  Stocks don't normally rebound very quickly from "big red bars" as we saw yesterday on the chart.

AMSC is a leader in alternative energy, offering grid interconnection solutions as well as licensed wind energy designs and electrical systems.

Long American Superconductor in fund; no personal position

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