Lime Energy: A Play on Energy Efficiency

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Lime Energy (NASDAQ:LIME)

Lime Energy is a play on energy efficiency - the company provides a "one-stop shop" for energy efficiency and renewable energy design/build solutions nationwide. Lime has a huge market opportunity in energy retrofits, a large and fast-growing industry, where it offers consulting, implementation and performance evaluation. The company is on the verge of turning profitable and is on track to generate 40%-plus revenue growth this year.

With 23 offices across the US, Lime's design/engineering/installation services enable commercial, industrial and institutional customers to reduce direct operating costs and environmental footprint - it has expertise in lighting, HVAC, water, weatherization, and renewable energy. Clients include Honeywell (NYSE:HON), Sempra Energy (NYSE:SRE), Johnson Controls (NYSE:JCI), Frito-Lay (NYSE:PEP), Lockheed Martin (NYSE:LMT), the US Post Office, schools K-12, universities, and the US Coast Guard.

Less than 2% of US office space has been retrofitted to improve energy efficiency - and energy represents the single-largest cost for building owners. The market is huge for industrial and institutional customers, along the lines of $30-$50 billion.

A recent Lawrence Berkeley National Lab report stated, "The Shifting Landscape of Ratepayer-Funded Energy Efficiency in the US," and concludes that efficiency funding could reach $5.4-12.4 billion in 2020, up from $3.1 billion in 2008.

For Q3, LIME reported revenues of $21 million, in line with estimates. It paid down almost all debt and has $24.2 million in cash. To become profitable next year, Lime needs to achieve +54% YOY growth with revenues of $110 million.

Lime is well positioned to be a major beneficiary of the energy efficiency market, but there are risks. Given the growth projected for the industry competition will intensify, the company needs to increase revenues significantly to outweigh its expenses.

Disclosure: no positions