An improving overall environment for wind power in general, in the US, and company-specific financial improvements, could revive investor interest in Broadwind Energy (BWEN), over the next 12 months (BWEN current stock price: $1.49).
Note: BWEN is a very risky equity, given the company’s liquidity position. Please review the company’s most recent 10-Q for liquidity issues.
What does BWEN do?
BWEN operates in three business segments:
Towers: The Company manufactures towers for wind turbines, specifically the large and heavier wind towers that are designed for 2 megawatt (MW) and larger wind turbines. BWEN’s facilities have a combined annual tower production capacity of approximately 500 towers (1,200 MW of power).
Gearing: The Company manufactures precision gearing systems for wind turbines and custom-engineered gearing systems and gearboxes for energy, mining and other industrial customers.
Services: The Company offers technical and precision repair and engineering services to developers and operators of wind farms and manufacturers of wind turbines. During 2010, the Company approved an investment of approximately $7 million to develop a dedicated drivetrain service center in Abilene, Texas, focused on servicing the growing installed base of MW wind turbines as they come off warranty. The drivetrain service center was dedicated and put into operation in February 2011.
What Changed Here?
After two years of horrendous financial reports, BWEN’s recent financial results, under a new CEO, show signs of significant improvement and I believe some of their new services have excellent long-term potential. Additionally, after a significant downturn following the recession, the wind power industry in the US is showing signs of continued stabilization and growth. Despite signs of a recovery, BWEN’s stock price remains at depressed levels.
Disclosure: Affiliates of Envoy Global Research, and its principals, own shares in BWEN. All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise.
Important note for subscribers: Even though there is no causality here, after I posted the BWEN report earlier this morning on June 23, the stock price rose significantly above the write up price. Please be careful in considering purchases at prices well above the write up price of $1.49. This is not a stock to chase. It is quite volatile. I am unsure why the stock had a sudden rise today. It’s possible that the rise in BWEN is related to Google’s investment in the wind power industry, which was highlighted in a recent NY Times article here: http://www.nytimes.com/external/venturebeat/2011/06/22/22venturebeat-alta-wind-energy-center-gets-an-extra-102m-f-44006.html
Now back to the analysis:
I. Wind Power Industry
Let’s start with the overall wind power industry, because the improvements in the US wind power industry will undoubtedly effect BWEN.
The best source for industry data is at: http://www.awea.org/
An April 2011 press release from the AWEA, highlighted the improvements in the wind power industry in the US.
From the release:
The entire press release is here:
http://www.awea.org/newsroom/pressreleases/1QNumbers4282011.cfm
II. BWEN’s Financials Specifically:
Shares Outstanding: 107 million
Cash: $22 million
Debt: $10.6 million ($1.4 million due this year)
BWEN mentions a potential liquidity issue in its 10-Q, but I am not entirely clear why. The company appears to have sufficient cash to manage operations for the next twelve months. Of course, if any of their suppliers face a cash crunch, BWEN could also suffer dramatically. However, the company has little debt and so I don’t see much financial risk here.
Most importantly, BWEN’s last quarter showed significant financial improvement. Sales increased 100% and the company reported positive EBITDA compared to a loss the year before. At March 31, 2011, backlog totaled $227 million, a slight increase over the December 31, 2010 backlog of $226 million. Interestingly, the company’s largest division, Towers, reported an operating profit of $2.4 million in the quarter. The other businesses lost money.
As BWEN’s other businesses reach breakeven and/or start to make money, the company could show significant bottom line growth that would boost the share price.