Firm believes pending announcements could drive estimates higher, increase FY09 earnings leverage visibility, and narrow the current multiple discount to growth from investor concerns over execution. Given improved Q207 execution and increased comfort with company's unique position as the largest, and lowest-cost, incumbent producer for industrial-grade carbon fiber, which they expect to be supply constrained through at least 2010, firm sees shares as attractive. They see Zoltek's market opportunity as similar to silicon providers to the solar industry two years ago.
Firm anticipates a substantial contract extension with Vestas at ~2x+ the current 3-yr $80-100M. They also believe company will reveal textile-plant conversion plans for precursor at a plant in Mexico. Lastly, they expect follow-on contract orders from other new and existing wind turbine customers in 2007 and oil services companies in 2008.
Notablecalls: Zoltek is definitely a unique stock in two ways:
1) It is a dominant player in fast-growing sector, providing carbon fiber for the wind energy sector. The company is in quite the same position as MEMC Electronic (NYSE:WFR) is to the solar sector.
2) Unlike MEMC Zoltek is the only US-quoted pure-play of the wind energy sector.
Given all the gaga over solar energy, one might wonder why wind energy has gone relatively unnoticed. Lack of high-profile quoted wind energy companies has probably been the reason, but that is rather unjustified. After all, it has proven to be profitable source of alternative energy.
Look for wind energy to continue growing and Zoltek to be one of the beneficiaries long term. Short term, it's tough to make a call here following big gap up on Friday. Ideally I would like to see a pull-back to low $30s - that's probably where the analyst community would come out with aggressive recommendations. Not sure if we get that kind of opportunity, though.
ZOLT 1-yr chart: