A Sunny Outlook For Emcore - Barron's

A small solar-power company, Emcore's (EMKR) shares have fallen 75% this year on growing losses, but Barron's Mark Veverka says this has only made the company more affordable and the outlook for Emcore's new concentrated photovoltaic, or CPV, technology remains bright.

CPV is the next step in the evolution of solar technology, allowing for the creation of more energy per square-surface area at a lower cost than today's technology. CEO Hong Hou expects the CPV business to start accelerating in the next 3-6 months. However, the company does more than CPV. It has a telecom fiber-optics business expected to generate FY 2008 revenue of $185M, while its solar business, which extends beyond CPV technology, could generate around $80M this year. Emcore's fiber-optic and solar-satellite operations together are worth around $310M, just above the company's $303M market capitalization, which means Emcore investors are getting an option on promising CPV essentially for free.

Still, Emcore's success is not a sure bet. The company lost $58.7M in its most recent fiscal year, solar technology is changing rapidly and 44% of the company's publicly traded shares were sold short as of last month, partly because of Emcore's lack of established clients. One hedge fund managers explains, "You don't analyze this company on a quarter-by-quarter basis. It is a venture bet on a promising and demonstrated technology that could be worth billions. You either believe that CPV will be a huge market, or you don't. And if you do think CPV is real, then Emcore is the de facto winner, period."

As a positive sign for Emcore's future, better-funded venture-capital-backed companies, like Soliant Energy and Canada's Menova, are now signing on. Soliant is partially backed by GE Energy Financial Services (GE), while Menova is working with Ontario province and Wal-Mart Canada. A growing pool of established clients could help buoy the stock. An investment-tax credit aimed at helping the solar industry just got an eight-year extension as part of the Congressional bailout bill, and "that's good news for Emcore because its technology is suited to [big-budget] commercial projects," says clean-technology analyst Chris Chaney. Chaney has a Buy rating on the stock and a $10 price target.

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• Earlier this month, Emcore secured $25M in financing from Bank of America for working capital, letters of credit and other general corporate purposes.
• Emcore (EMKR): Q3 EPS of -$0.04 misses by $0.01. Revenue of $75.5M (+70.0%) vs. $78.5M. [PR]

Comments

[GMI1982:]

Recent valuations by Merriman and Jefferies are more like: Fiber optics business at $5-7/share and the satellite solar business at $1-2/share, or business worth $6-9 without consideration for terrestrial solar. At $3.70, this stock is an absolute steal. Every $100M in solar biz adds $500-$600M in valuation on a comparables basis or about $2/share. As the deals mentioned come fruition, you can expect revenues close to $1B over the next couple of years. What do you think this will do to the stock price?

2008 Oct 19 08:22 AM

[zvikas:]

As long as this stock will be shorted by nearly 60% the company can make 1B each Q the stock has no chance

2008 Oct 19 01:55 PM

[Robert D.:]

You are missing the most important point of the article:

"THE ECONOMICS OF CPV versus thin-film go like this: CPV semiconductor cells are roughly 20 times more expensive than those used in thin-film technology -- and more difficult to make -- but require just one-one thousandth of the amount of material needed by thin-film. Using CPV technology, a solar park would need one acre of land to generate a megawatt of power; using thin-film technology, it would need 15 times the land area, CEO Hou says. That makes for lower installation, maintenance and real-estate costs"

It will be difficult to gain acceptance at those prices.

2008 Oct 20 02:07 PM