Wind-Turbine Part Maker Kaydon Poised for a Blowout Year - Barron's

Annotated article summary from this weekend's Barron's. Receive all our Barron's summaries by signing up here:

Wind at Its Back by Jim McTague

Summary: Kaydon (KDN) supplies high-margin specialty parts such as bearings and springs to wind-turbine makers, as well as defense, aerospace, medical and electronics companies. Wind-turbine parts are the most intriguing part of its equation: Friedman, Billings, Ramsey analyst Ned Armstrong says revenue from wind-turbine parts could easily jump five-fold, from a present $20 million to $100M. New CEO Jim O'Leary is building excitement. He says he's looking to spend the company's estimated 15%/year cash growth on acquisitions, dividends, and share buybacks. Keybanc Capital Markets' Steve Barger thinks O'Leary will buy a European wind-power manufacturer to increase its current 30% non-domestic sales, although O'Leary says he'd rather grow organically overseas. European companies, such as Spanish wind-turbine giant Gamesa (whom O'Leary indicates he's courting) are moving into the attractive U.S. market, and are likely to favor local component makers; Gamesa currently buys from Kaydon rival Ameron (AMN). At $55, up 28% since mid-February, shares are still reasonable. They could go as high as 66 in the next year, and considerably higher after that.

Related Links: Barron's Five Clean Tech Stocks for a Greener Future • Wind Power: Economics and Investment Opportunities • Zoltek: Smart Play on Wind Energy

Comments

[Long-Short Guy:]

See also:
<blockquote>
<b>Good for the soul doesn't have to mean bad for the wallet</b>

...Guinness Atkinson Alternative Energy has returned more than 35 percent so far this year, better than all conventional energy funds in the database of the research firm Morningstar... Guinness, whose firm also runs much larger portfolios focusing on traditional forms of energy, favors three segments of the renewable sector: wind, solar and geothermal...

The business model for the last one resembles the oil industry a century ago: Invest money up front, stick a hole in the ground and bank the profits as the earth's heat is transferred, usually through steam or superheated salt water, to electricity generators. The fund owns stocks of two companies that do this on an industrial scale, Ormat in the United States and Geodynamics in Australia. A third holding is W.F.I. Industries, a Canadian company that amounts to a geothermal boutique, supplying pumps and pipes that are buried in the backyard to supply power to individual homes.

Wind was one of the first renewable energy sources to be commercially viable. Turbine manufacturing is especially profitable today, Guinness said, because demand is outstripping supply, sending prices higher. He anticipates 25 percent annual sales growth for the sector over the next five years. His preferred vehicles for capturing it are the Danish company Vestas, regarded as the industry leader, and Gamesa in Spain.

Solar is less profitable but Guinness finds its long-term growth prospects more auspicious. He anticipates 30 percent to 40 percent annual sales increases... He has doubled the solar component of his portfolio in recent months to 30 percent of assets. His choices include SunTech Power and Q-Cells, solar cell makers based in China and Germany, respectively, and MEMC Electronic Materials, a Missouri company that produces silicon wafers used to coat the cells. Two other holdings that do big business in solar are the Renewable Energy Corporation in Norway and the Colorado company Solar World. Guinness added that he was shunning some of the larger solar businesses, like SunPower and Energy Conversion Devices, because their valuations are too rich.</blockquote&g...

Source: iht.com/articles/2007/...

2007 Jul 22 06:20 PM