Yesterday, Westport Innovations (NASDAQ:WPRT) posted a loss for the quarter, but revenue jumped 61 percent. The loss was a bit wider than expected, and today its shares are down almost 11 percent on the Nasdaq. (The release is here). So why take a look at the admittedly money-losing company now? Valuation for one. The median price target on the stock is $10.58, or more than double its current price. Sales are growing, and new opportunities for its natural gas engines seem to have more upside than downside, analysts say.
If you're new to Westport, the Vancouver-based company makes engine platforms that run on liquefied or compressed natural gas for commercial and industrial trucks. Think garbage trucks, city busses, or increasingly, medium-distance haulers starting to shift away from diesel.
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Deals with big engine makers like Cummins (NYSE:CMI) provide some earnings stability, and analysts still seem fairly bullish on a stock that's been beaten down along with the rest of the "green" sector. Through its partnership with Cummins, the firm announced 3,300 orders for natural gas engines in the quarter, and sales to new markets like India have also been strong. Plus, the company has been cutting debt exposure, with a debt as percentage of capital at a comfortable 15.6 percent, down from 25.4 percent at the end of fiscal 2008. Analysts had this to say about the latest quarter:
Robert Brown of Craig-Hallum Capital: We maintain our BUY rating as we remain confident that Westport should benefit from a shift to alternative fueled medium and heavy-duty vehicles. This shift continues to drive growth for the company despite an overall poor macro environment and dismal truck market. We think the weak macro is being offset by a significant portion of business in non-economically sensitive segments such as transit and municipal markets (e.g. refuse trucks). Further, the ports program looks to be moving forward, 2010 EPA emissions standards are just over the horizon and OEM production is ramping. We think these factors should drive strong growth over the next several years.
Brion Tanous of Merriman Curhan Ford: As fuel prices rise and government entities continue to put pressure on the sources of carbon emissions, we believe the lightweight, medium-and heavy-duty (Class 8) truck market—all segments being significant producers of greenhouse gases (GHGs)—will likely accelerate its adoption of alternative-fuel and hybrid vehicle platforms across all vehicle sizes. Westport Innovations is leveraging its firstmover advantage with the first certified LNG Class 8 truck engine and is currently pursuing a large CNG/LNG truck opportunity (up to 8,000 vehicles in four years) with the Port of Long Beach.
The structural advantages of a fleet-related company are fairly obvious. Big trucks pollute heavily, travel relatively constant routes, and can be supported by the sort of small-scale infrastructure requirements current natural gas systems can actually satisfy (unlike more lofty goals of natural gas-powered passenger cars and trucks). As mentioned above, Westport's California deals with the Port of Los Angeles and the Port of Long Beach could be the start of something big, and would give Westport a sizeable advantage since it's the only approved alternative fuel engine maker at those locations, Brown notes.
The company is also a "green" name with a defensible niche, unlike a lot of the more popular names in the solar and wind space that face a far tougher operating environment today than they did a year ago. Westport's business may be more hum-drum than revamping the entire U.S. power grid, but such ambitious plans are being pared back heavily as the credit crisis spreads and overly ambitious expansion during the last few years creates oversupplies of things like wind turbines and solar panels. Bottom line: Westport might not be sexy but it might be slightly safer.
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A few risks: Like everywhere else, the global truck market is pulling back a bit leaving Westport and its engine-making partners at risk of slower sales. Low oil prices don't help either. Plus, even a quick glance at the company shows it's not profitable and is a highly speculative small cap. That's a risky corner of a risky market. Still, keep Westport on your "green" watch list for a time when the rest of the market mess straightens itself out.