Raser Technologies: A Short Squeeze in the Making

I have been following Raser Technologies (RZ) for several years now, and as a money manager, I don't see too many opportunities from the long side which are as compelling as this one - particularly in this recessionary environment. Given the disclosures available in the company's public filings, I think this ~$9 stock will be worth at least $25 by year-end, and with a short interest of 35 days of volume, this is a tinder box awaiting a match.

Why does a skeptic like me like a stock like this?

First, the company is in the alternative energy space. Specifically, they are in the development stage of creating geothermal energy plants. These are power plants which harness warm/hot water from beneath the earth's crust to create steam, which then turns a turbine and thus produces electricity. Their first plants should be online and producing electricity in the 4th quarter (this is why I like the stock NOW vs. waiting until Q4 when it will likely be too late). While I like the alternative energy space, I REALLY like geothermal - it's what's called a "baseload replacement" technology - something which can take the place of coal, and something which, because of the renewable portfolio standards, the utilities HAVE to purchase.

Second, skeptics are everywhere, but their story is old and clearly shows a lack of solid research. The short interest is over 7 million shares and the volume has recently been below 200,000 shares per day. In my opinion, there is a big squeeze brewing. See, Raser is a "management redo." That is, the old management pursued a business strategy developing a technology which met with no success. For good reason, investors were skeptical. Here's the problem: the new management team has extensive credentials, is pursuing a very strong business plan (which does, by the way, still use some of the old technology - but in a much less substantial way), and has assembled all the right partners. In this author's opinion, the shorts are hanging around for legacy reasons.

Even the 10Q Detective, whom this author admires, is focused on history. Skeptics will point to how the company doesn't make money and how it has promised things in the past and not delivered (they even resort to highlighting the company's 10Q risk disclosures - something which is awfullly stale). This misses the point - stock prices are about the FUTURE - they are an estimation of the market's view of the present value of the FUTURE cash flow streams. Looking at the the past is only part of the story....for Raser as well as with other equities, investors must look forward, and in this case, the future is very bright.

Third, the company just hosted a well-attended analyst day. This is still a relatively underfollowed company (by institutional standards), yet I suspect there was some real interest generated....perhaps some more investment banks will initiate coverage shortly. More to the point however, the company paraded out their key partners - one of which is United Technologies, a $67 billion company, known for its industrial assets. United Technologies (UTX), whose PureCycle geothermal machine just won an award from the National Energy Resources Organization [NERO], called Raser their "key partner" in developing geothermal resources. Talk about an endorsement: the UTX people have not only been at their analyst meeting, but also participated in a recent ground-breaking ceremony with Senator Orin Hatch to begin construction of Raser's first power plant.

Fourth, this "development stage" company which currently has no revenue and has a history of producing losses, should be producing revenue from multiple power plants in the fourth quarter of 2008. Specifically, the company has signed power-purchase agreements for 30+ megawatts of electricity and claims to have 80-85mhw of projects in development now. At least two of their plants (and perhaps more) should be producing revenue by Q4. That should change the shape of this company substantially, as it becomes something more conservative (vs. speculator) investors will accept (not to mention the quants, who will jump all over this because of the change from no revenue to revenue-producing). In terms of numbers, according to the company's filings, each 10 mhw of power amounts to roughly $25 million of EBITDA (when measured in net present value dollars with a 15% discount rate). Even if investors wish to remain skeptical about the company's ability to roll-out plants as quickly as the company claims (100 mhw per year in the first 3 years and 150 mhw per year each year thereafter), this stock is an easy double once they put the first plant online (Q4).

In my opinion, the shorts, who got this right many moons ago, have overstayed their welcome and are due for a massive squeeze in the very near future. They've tried and tried again to push this lower (astute investors would be well-served to look at the closing prints each day - there is so clearly some "funny business" going on here worthy of inspection by regulators), yet have been reasonably unsuccessful. The steady drumbeat of interim developments continues and I suspect more material announcements are imminent - culminating with revenue in Q4.

Good luck!

Disclosure: Author holds a long position in RZ

Comments

[hokieincane...:]

The $55 million of convertible notes represents almost 6 million shares. How many of these holders have shorted the common? I would suspect that it is a material portion. If they shorted above $9.22 per share, they have recovered all of their capital and still get the interest on the notes.

How are you going to squeeze these shorts?

2008 Jun 16 09:39 AM

[razormd:]

HAW!!...an "anonymous" contributor comes out of nowhere to pump RZ!...I guess desperate situations call for desperate measures, huh!...personally, I smell a short opportunity ripening on the vine -- from a recent PR:

"Once the production wells have been flow tested, independent third party analysis of the resource will be issued, which is one of the final conditions required prior to Merrill Lynch closing the construction funding for the plant under the terms of the Commitment Letter recently announced for the renewable energy project."

...wonder what'll happen if those "independent third party" analyses come back poorly!...and "credentials"???...man... has ZERO "credentials" in geothermal energy -- they blindly jumped in about a year ago when it was becoming obvious they couldn't squeeze much more mileage out of that idiotic "symetron" gizmo...and that "purecycle plant" -- from a Tribune story about RZ:

"...the company warns that the technology it intends to use at the heart of its geothermal energy production activities has a limited operating history and has been deployed only in a limited number of projects."

..."limited number of projects"????...uhhh, ONE project:

www.utcpower.com/fs/co...

...to be EXACT!!...I don't think you should be looking for a short squeeze to salvage your RZ investment anytime soon!...HAW, HAW, HAW!!!

2008 Jun 16 10:57 AM

[seasoned1:]

You rzmd you seem to ignore that UTX, just a 60 Billion $ company is involved in thes projects and to your question what happens if the 3rd party tests fail, what happens when they are successful. You have to be incredibly naive or dumb to think that RZ has spent as much as they have to end up failing at the very end. At minimum your thought process, if any was applied, flawed.

2008 Jun 16 11:19 AM

[alphaMS:]

Abraham Gaines how are you doing? Why did you change usernames and start posting under Alexandra Minskey. In your next post could you please use spell check?

One more question; you claim to be a skeptic--you then you go on to say the skeptics story is old and clearly shows lack of research.

So from this can we derive your story is old and shows lack of research?

2008 Jun 16 11:32 AM

[Romans518_1132:]

Great article Alexandra. The only thing I would add is that Raser also has a Transportation and Industrial Technology Unit which ultimately could surpass geothermal in importance.

Here's a key quote from Raser's 2007 Annual Report:

"Our Transportation and Industrial Technology business has not let grass grow under its feet either. We expect to realize some very important milestones in this business segment in 2008 as well. We plan to complete the full-size demonstration SUV that we are developing. The extended-range PHEV is designed to drive 40 miles in all-electric emissions-free mode with a gas fuel economy of over 100 miles per gallon in typical local daily driving. We believe this will create QUITE A STIR (emphasis mine) in the automotive world that should bring strong recognition and validation to our Symetron technologies."

So if online geothermal doesn't spark a short squeeze, this event may.

Also, as demonstrated in the 2008 Stockholders Meeting Video ...

www.rasertech.com/medi...

... it's clear that its Symetron integration partner FEV could not be more excited about Symetron and prospects with working with Raser in the future. They say that Symetron is the future of PHEV's!

Raser's Hyundai Heavy Industries and Wilson Auto Electric connections could kick in in 2008 as well.

2008 Jun 16 11:37 AM

[Romans518_1132:]

Great article, Alexandra. The only thing I would add is that Raser has a Transportation and Industrial Technology Unit which could eventually surpass geothermal in importance.

Here's a key quote from Raser's 2007 Annual Report:

"Our Transportation and Industrial Technology business has not let grass grow under its feet either. We expect to realize some very important milestones in this business segment in 2008 as well. We plan to complete the full-size demonstration SUV that we are developing. The extended-range PHEV is designed to drive 40 miles in all-electric, emission-free mode with a gas fuel economy of over 100 miles per gallon in typical local daily driving. We believe this will create QUITE A STIR (emphasis mine) in the automotive world that should bring strong recognition and validation to our Symetron technologies."

So if on-line geothemal doesn't cause a short squeeze, this event may.

And it's clear from the video of the 2008 Stockholders Meeting that its Symetron integration partner, FEV, could not be more excited about Symetron and prospects of working with Raser in the future. They say that Symetron is the future of PHEV's!

Finally, 2008 could be the year that Raser's connections with Hyundai Heavy Industries and Wilson Auto Electric begin to pay off.

2008 Jun 16 11:58 AM

[razormd:]

...HAW!...for "seasoned1" -- UTC Power installed the first purecycle unit at Chena Springs 4 years ago...since then the ONLY other customer has been RZ...now, let's see, four years and nooooobody else in the WORLD but RZ is interested in purecycle plants...I wonnnnder what that could mean?...HAW!

2008 Jun 16 12:01 PM

[razormd:]

HAW!!...for "Romns":

"Consequently, just as one offense resulted in condemnation for everyone, so one act of righteousness results in justification and life for everyone."

....unfortunately, RZ's transgressions will condemn only its shareholders and the probability of management executing an act of righteousness is probably about that of seeing a pig flying overhead!...HAW!!!

2008 Jun 16 12:07 PM

[seasoned1:]

What I think it means is that no one else went to the effort to look at the technology and take the risk to move it forward. That is what an Entrepreneur does.

2008 Jun 16 12:13 PM

[alphaMS:]

UTCP comes through with a hugely successful geothermal facility (Chena) and for 2 years no one went to the effort to look at the technology?
Possible, but do you really think that is the case. I guess you could call UTC power and ask them if no look at their technology. I doubt you will do that though

2008 Jun 16 09:22 PM

[Nick Gogerty:]

any thoughts on the tax equity financing that could disappear if the renewable energy bill doesn't get passed?

2008 Jun 17 09:08 AM

[tmccants2@y...:]

This is interesting---rz has made little contact with me--I happen to own 1200 acres(no lease on it) in the best part of the field and a home setting on the hottest spot plus 440 acres of water mineral and geothermal rights-- deeded. The property and greenhosues are for sale. If they are going to do all this seems as though they would make contact....

2008 Jul 22 09:06 PM

[scamspotter:]

What a blatant and unrealistic plug for Raser. Anyone who has followed this stock for more than a year or so, knows this was a total scam about electric engines wherein the insiders took out tens of millions of dollars in cash from ruthlessly pumping this stock. As their house of cards was beginning to crumble around them, they stumbled into this geothermal deal and now are working it. Will they ever make a profit for shareholders? That remains to be seen but Piper Jaffray has it right when they initiated coverage saying this stock was way way overvalued and $7 was a far more reasonable number then $10 or certainly $25.

Further, any journalist who is preaching the short squeeze is nothing short of a desperate bagholder who realizes this stock can't climb on merit and therefore has to resort to gimmickry to lure the greater fools. The stock has a large short interest for a very good reason, it's an overpriced pig.

2008 Jul 25 11:26 AM

[terryhallinan:]

From the heady heights of OTI's "Mile High Campus" to a lowland geothermal conference in Europe has come word that the future of geothermal power lies more in low entropy distributed energy geothermal resources than the hotter megaprojects that currently blot out the sun. The deep thinkers at MIT looking far below the surface may take century or even a millenia to see their dreams realized though they surely lit up the sky with their forecasts of the potential for Enhanced Geothermal Systems (EGS).

From a "magic pond" in Vermont, where the water never freezes, to the Paiute Indian Reservation at Ft. Bidwell in California to Texas leasing depleted oil and gas wells to North Slope oil and gas producers looking to geothermal power for their nefarious activities, the lie is put to bashers claiming there is no future for the UTX technology.

I was frankly surprised by the praise lavished on the UTX technology by an executive of a company with a competing technology - the Kalina cycle. The Kalina cycle was first deployed in the remote village of Husavik, Iceland. The low temperature geothermal waters were further heated by a garbage burning-facility that about doubled the power output to 2MW.

For sure I have put my money on the hot prospects but it is simply false to claim that there is no possible future for what RZ is attempting.

I make no representation that RZ will be a profitable investment or otherwise and have no skin in their game for now.

I am only appalled by the misrepresentations here.

Best, Terry

2008 Jul 26 11:06 AM