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The Fort Collins-based solar inverter and thin-films company’s stock recently hit a 52-week high of $16.45 despite lower earnings of $20.6 million in 2012 vs. $36.3 million in 2011.
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But that didn’t stop Citigroup from initiating coverage of AE with a recommendation that investors buy the stock.
Increased interest in the company comes in the second year of a three-year restructuring in which Advanced Energy hopes to save $55 million annually through jobs cuts and outsourcing.
Things have looked up for the company. Among various developments:
• It announced a $50 million, five-year credit agreement with Wells Fargo in October. The credit line can be raised by $25 million for a total of $75 million subject to lender commitments and other conditions.
• It grew in November after acquiring Solvix SA, a privately-held Swiss thin-films company.
Still, why all the fuss about Advanced Energy, especially at a time when solar energy’s fortunes seem dim?
“They’re well on-track with their cost-reduction efforts,” said Rob Young, senior analyst for Wm Smith & Co. in Denver. The research firm owns less than 1 percent of companies that it covers.
“Fifty-five million dollars on an after-tax basis is approaching about $1 per share,” Young said. “So, if they can actually do that, that’s when they start to get some pretty sizable earnings growth.”
Investors also are glad to hear that Advanced Energy expects year-over-year earnings to increase in the $105 million to $115 million range, Young said.
That translates to earnings per share of 14 cents to 18 cents, though analysts believe that’s conservative.
A report by Young issued after Advanced Energy announced its quarterly earnings this month forecasts 2013 revenue of $507 million, or earnings per share of $1.05 in 2013. It expects 2014 revenue of $583 million and earnings per share of $1.40.
Young has set a one-year price target of $21 per share; Wm Smith & Co. previously estimated that target price at $16 per share.
How to explain the big swing? Here’s why: The analyst expects the company’s thin-films revenue to grow 4.2 percent to $245 million this year. Its solar inverter segment is expected to grow almost 21 percent to $262 million.
In 2014, its thin-films growth will reach almost 10 percent, while its solar segment will see growth similar to this year.
Young explained that despite challenges in the thin-films industry, increased activity and technological advances in the solar market should propel 20-percent growth in Advanced Energy’s solar division. The company’s revenue is split between its thin films and solar divisions.
Advanced Energy’s biggest challenge will be holding costs down, though its management team has done well at that so far, Young said.
Another reason for investors’ confidence is that the company has communicated clearly its strategy since Garry Rogerson joined as CEO in August 2011, said David Kaiser, research analyst for Robotti & Co.
New York City-based Robotti owns 1.2 percent of Advanced Energy.
“There’s more information for people to get to know what they’re doing on a management level,” Kaiser said. Advanced Energy has “great potential” and “they’re finally communicating that.”
Advanced Energy’s 20 percent average annual growth in its solar business in the next two years appears reasonable, he said. Even if there’s less growth, it should meet its earnings per share target.
The company also has the advantage of $111 million in cash generated during fiscal 2012.
“They have a lot of cash,” Kaiser said. “There’s the possibility to either reach their (earnings per share) goal sooner or very quickly surpass that goal by doing acquisitions, which they seem to be very disciplined about.”
But the same source of growth, solar, also will challenge the company. Dropping panel prices and vanishing tax credits may scare some investors away, though those aren’t necessarily realistic concerns, Kaiser said.
“The company’s so efficient now that the challenges are getting the revenue and getting it more consistently and overcoming some of the inherent challenges in the industry,” he said.
Steve Lynn covers technology for the Northern Colorado Business Report. He can be reached at 970-232-3147, firstname.lastname@example.org or twitter.com/SteveLynnNCBR.