jeudi 5 décembre 2013

Capstone Order Generates Buying Interest

By some measures, the current fiscal year (ending in March) for Capstone Turbine (CPST) has been a major disappointment. While the company does not give out much in the way of guidance, it has stated that its order backlog going into the year is a reasonable indication of the revenue. It also notes that revenue can be "lumpy" from one quarter to the next. On the Q1 conference call, CEO Darren Jamison stated:



So the backlog that we entered the year with is a good indicator of what we think we'll do for the year. We don't give specific guidance on a quarterly basis just for this very reason. As you know, we can be lumpy quarter-to-quarter.



That lumpiness has generated less than $60 million in revenue in the first half of the year with a record $35.3 million in Q2 that benefited from a dismal Q1. At the end of the second quarter, the backlog stood at $149.8 million, nearly unchanged from the $148.9 million entering the year. If backlog isn't growing while revenue is underperforming, should investors be concerned?


It's not just that the revenue was low and the backlog was virtually unchanged from the start of the year, but new orders appeared to be very weak so far in the third fiscal quarter. Capstone regularly issues press releases about order activity. On Wednesday, investors saw the first press release about an order since mid-September. Investors responded by driving the share price up 5% on twice the normal volume.


The order was for "a single C1000 and multiple C200s for use on offshore platforms in Alaska's Cook Inlet." With a C1000 selling for approximately $830,000 and C200's selling for approximately $230,000, the order is for at least $1.4 million.


In some respects the order was routine. It was sold to an end user that already had several Captsone turbines and into a market where Capstone has demonstrated success. However, it was also through a new distributor, and the customer - Hilcorp Alaska LLC - acquired its other Capstone turbines when it purchased oil rigs from Marathon Oil (MRO). In that sense, this was a new purchase decision by the customer, and an important win for both Capstone and its new distributor, Chenega Energy LLC.


Another factor that may have helped send the shares higher was the potential for additional future orders. According to the distributor, Hilcorp plans on spending $500 million on development with half of the amount targeted for remediation and repair, and,



Based on Capstone's demonstrated reliability and performance, Hilcorp plans to use Capstone microturbines on the remaining 5 drill rigs that have yet to be renovated.



December has been an important month for Capstone as companies often will commit their unused capital budgets. On the Q2 conference call early last month, Jamison discussed orders and revenue:



I mean, Q4 is typically our biggest sales quarter. We have -- we usually have Q1 price increases, so we should get a little bit of a wind in our sales there. But Q3, from a revenue margin standpoint, has historically been our best quarter of the year. We hope to do that again this year and then follow up with another strong Q4, with both bookings and revenue in Q4.



There has been some follow through on the share price movement today, and as of this writing, the price is up another 3% to $1.26. It remains below the mid-$1.30's reached shortly after earnings were released last month, and well below the 52 week high of $1.52 reached shortly before fiscal 2013 earnings were released.


Disclosures


I had previously written an article that recommended buying Capstone ahead of Q2 earnings, and followed my own advice. When earnings were released, despite setting a quarterly revenue record, I wrote the following:



I have rarely made the type of strong buy recommendations outlined in my previous article on Capstone. In a comment on that article I noted that I had followed my own recommendation and made two purchases during the week leading up to the earnings release at price points of $1.17 and $1.23.


Fortunately, the market appears to be far more receptive Capstone's results than I am, and had pushed the shares up to $1.32 on Monday, prompting me to begin closing these two positions and grabbing profits. I currently have a limit order in place to sell at $1.32, and have already sold just over 42% of those two purchases. I also maintain a very long-term position opened over 5 years ago and intend to hold those shares.



Those positions were closed at $1.32, and I have executed some short term trades since that article, purchasing shares when the price traded down towards $1.16 and selling on the bounces. I currently maintain only the very long term position noted above. I expect that I will continue to engage in opportunistic trading, but do not plan on committing any long term funds to Capstone at this time.


Summary


This order was certainly a positive for the new distributor and it is encouraging that Hilcorp will be buying additional products in the future. Investors, however, should look for other, more positive, signs in order activity. Specifically, orders from new customers or those representing new applications or demonstrating that Capstone is penetrating new geographic markets would be preferable.


December has historically been a good month for Capstone press releases about new order activity. Perhaps this order is the first in a series of press releases that will reveal that the company has begum to turn things around from a poor start to the current fiscal year, but I would prefer to see more stories before increasing my long term position.


Source: Capstone Order Generates Buying Interest


Disclosure: I am long CPST. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)



Additional disclosure: As noted in the article, I will also opportunistically trade shares of Capstone.


This entry passed through the Full-Text RSS service — if this is your content and you're reading it on someone else's site, please read the FAQ at fivefilters.org/content-only/faq.php#publishers.






from SeekingAlpha.com: Home Page http://seekingalpha.com/article/1880321-capstone-order-generates-buying-interest?source=feed

Aucun commentaire:

Enregistrer un commentaire