I've written recently about how inexpensive I believe Power-One (PWER) is on a "conventional" earnings-multiple basis. Now let's take a quick look at the company on a "sum of the parts" basis.
Power-One has two divisions, "renewable energy" (i.e., inverters) and "power solutions." The "power solutions" business is running at roughly EPS break-even and isn't expected to grow this year; thus, it's roughly "earnings neautral" for the company. However, it *is* generating approximately $325 million in annual revenue, and I believe it could be sold for roughly 1x that figure to a larger company, which could eliminate enough SG&A to make it nicely profitable. If a sale were to occur at that price ($325 million), it would generate roughly $2.25/share in cash for Power-One. Additionally, Power-One currently has approximately $2/share in cash and cash equivalents (when one values the remaining operating loss carryforwards).
I believe that Power-One's inverter business could do around $2/share in EBITDA this year, and that it could be sellable for around 8x that figure. (Please keep in mind that this company is No. 2 in worldwide market share in a sector that IMS research recently estimated will have a forward compounded growth rate of 25% a year.) So, 8x $2/share in EBITDA would be $16/share, in addition to the aforementioned $2/share in cash and $2.25/share for the potential sale of the "power solutions" division. So, if Power-One were "unbundled," I believe that there could be as much as $20/share of value in the company.
Another way to look at this is that if one were to strip out $4.25/share for the cash and power solutions business, Thursday's closing stock price of $8.72/share reflects a value of just $4.47/share for the inverter business, which is probably only 4x or 5x 2011 net earnings.
Thus, although Power-One is encountering a short-term cyclical slowdown (perhaps a quarter or two) within the long-term cyclical growth sector of solar and wind inverters, I believe (based on this sum-of-the-parts analysis) that the stock is priced with an excessively large "margin of error" built into it, and thus its upside potential significantly outweighs its downside potential.
Disclosure: I am long PWER.
