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  • New Cap And Trade Legislation Could Be Watershed Moment For These Stocks

    January 12, 2012

    Prime Equity Research, LLC

    Financial Writer: Chris Engleman

    Includes: BBLU.Ob, CCC, PBW, FTEK

    New Cap and Trade Legislation could be Watershed Moment for these Stocks

    New Cap and Trade Legislation could be Watershed Moment for these Stocks

    An increase in government regulation is most often considered a burden to corporate America and industries subject to a high amount of regulation trade at discounts due to the risk. There is one industry where the growth of policy and programs adds to top-line sales and public sentiment is actually turning in favor of more regulation.

    I'm from the government and I'm here to help

    Growth in environmental regulation and energy efficiency mandates has increased over the last decade. While the US Environmental Protection Agency has driven some of that growth, many of the new rules have come through court decisions or settlement agreements. This sets a powerful precedent that will not be overturned by subsequent administrations or a weakening of the EPA. As such, future growth for providers of clean energy technologies and energy management is more reliable than it has been in the past.

    In FY 2011, EPA enforcement actions required companies to invest an estimated $19 billion in actions and equipment to control pollution. This is the highest recorded injunctive relief in EPA history, and the agency is now under court order to promulgate rules that have been deferred for years.

    Twenty-four states have adopted or have pending Energy Efficiency Resource Standards (EERS) which set long-term, fixed efficiency savings targets. Twenty states have budgeted over 1% of electric revenues for energy efficiency programs. Ratepayer-funded energy efficiency spending is estimated to increase at a compound annual rate of 16.1% from 2010 to 2015.

    While utility rebate programs and other efficiency mandates will benefit the pollution & treatment controls industry, the biggest driver could be an increase in carbon cap-and-trade programs. Though a national bill was rejected in 2010, California passed its own plan with enforcement starting January 1st of this year.

    The plan requires industries to purchase permits to release greenhouse gases and aims to reduce total emissions by 17% to 1990 levels. The state currently emits about 447 million tons of greenhouse gases each year with 10% originating from commercial and residential buildings. The country's largest economy has often been used as a proving ground for environmental policy and other states are watching the program closely. The state's first auction of pollution allowances saw all 23.1 million allowances offered at a price slightly above the $10 floor. A portion of the $289 million raised is mandated to go to furthering the state's clean energy goals. Purchase of pollution allowances is voluntary but companies who emit large amounts of carbon must either buy the credits or find ways to reduce their emissions.

    As the program develops, it could significantly spark demand for alternative energy, renewable energy and for energy conservation. State public utility commissions are mandating that utilities help drive energy conservation among their rate payers.

    An emerging industry with significant tailwinds

    Despite having been around for decades, the pollution & treatment controls industry is still a nascent industry in its current form. Of the 71 publicly-traded companies listed on Yahoo Finance, 65% are nano-cap stocks with market capitalization of under $50 million. As with many early stage industries, the capital required for research and development creates a large barrier to entry and makes it prohibitively expensive until volume can be reached to recoup costs.

    This has segmented the market into smaller companies created for research purposes and larger companies with a competitive advantage in M&A strategies. Once a viable technology is produced, the larger company will acquire the smaller and roll it into its product portfolio.

    North America's public pure-play clean tech company population fell 3% in 2012. The segment had an aggregate net loss of $3.1 billion though total revenues increased by 30% to $30.2 billion. Despite loss in the number of companies, the total headcount increased 4% to 72,000 in the industry. Debt levels were increased by 79% indicating access to capital despite losses and a positive environment going forward.

    Ernst & Young conducted a telephone survey of executives at 100 companies with revenues of $1 billion or more and across a diverse set of industries. More than half reported that energy costs comprised more than 5% of operating costs and 22% reported spending more than 20% of operational costs for energy. Sixty percent expected increased energy efficiency programs over the next year. Seventy percent reported that their company had a formal strategy and implementation plan to manage energy use. The Lawrence Berkeley National Laboratory projects the energy efficiency marketplace to grow to $45 billion over the next eight years, almost four times as large as currently. Of this, energy service companies (ESCO) represents about 25% of market revenues.

    Reaching economies of scale and scope

    Blue Earth Inc. (OTCQB:BBLU), headquartered in Nevada, is a $22 million company engaged in the acquisition, licensure, development and marketing of clean-tech technologies and energy management systems.

    After acquiring developed technologies, the company uses existing networks to cross-sell products to small commercial businesses and residential customers to enhance the efficiency of building systems. Product categories cover a range from refrigeration, lighting, HVAC and energy-efficient motors and controls. Management has built a strong base of customers at the local, state and regional levels that enables it to accelerate the introduction of acquired technology and products.

    The company is expected to report sales of $11 million for 2012, more than double the $5.3 million in the previous year, though a net loss is still expected. Selling, general and administrative expenses were $6.86 million for the nine months ending September 2012 and will probably top $9 million for the year. Guidance is for a backlog of between $15 and $25 million in orders at the end of 2012.

    There is evidence that management is improving margins. For the three months ending September 2012, the company grew revenue by 54% compared to the same period in 2011 but managed to keep growth in SG&A to just 13%.

    CEO Johnny Thomas, providing guidance in November of last year, declared that the company had reached a critical inflection point where the, "ability to offer bundled energy solutions that provide meaningful cost savings to our customer will generate additional new orders," and that recent project financing agreements and a strong backlog of orders would accelerate cash flow through 2013.

    The shares trade at a premium for 2.9 times sales versus an industry average of about 1.0 times trailing sales. Management guidance is for revenue to increase almost ten-fold to $100 million in 2013 with EBITDA of $10 million. Despite access to credit, some cash needs may result in an increased share count. Even at the average price-sales multiple in industry, the stock could easily return to the highs around $4.00 per share seen in 2010. Insiders and large individual owners hold 20% of the shares, representing strong conviction in the company.

    Building a portfolio in the pollution & treatment controls industry

    Calgon Carbon Corporation (NYSE:CCC) is an $870 million provider of air, water, food and beverage purification equipment. The company is a more focused play on water resources and has operations in the United States, Europe and Japan. The shares trade for a premium at 1.5 times trailing sales with revenue projected to increase 5.7% next year to $594.5 million. While 90% of the float is owned by institutional and mutual fund owners, insiders only account for 2% of share ownership.

    Fuel-Tech Inc. (NASDAQ:FTEK) provides engineered solutions for the optimization of combustion systems in utility and industrial applications. The shares trade for a fairly valued 1.03 times trailing sales with revenue projected to increase 15.7% next year to $113.9 million. Insiders and large individual owners account for 31% of the shares outstanding, representing a strong conviction in the company.

    The PowerShares WilderHill Clean Energy Fund (NYSEARCA:PBW) invests at least 90% of total assets in companies that focus on renewable energy and technologies facilitating cleaner energy. Representative of the segment, most (77.5%) of the fund is invested in small-cap companies with 14.9% in mid-caps and 7.6% in large-cap companies. The fund trades relatively expensively at 19 times trailing earnings of companies held but pays a 3.9% dividend yield.

    Risks to consider

    While public sentiment has grown for energy efficiency and a proactive plan for the environment, any industry with such a close connection to government policy is bound to be subject to headline risks. While volatility may spike around key policy developments, the long-term should be positive. Additionally, individual companies are subject to considerable risk in creative destruction in technological competitiveness. This makes it important for companies to diversify across a broad mix of products and services.

    Court precedent and public sentiment have set the stage for reliable and increasing revenue into the pollution & treatment controls industry. While significant revenue growth is expected, the success of California's cap-and-trade program could be used as a model at the national level and lead to a surge in sales for companies in the space. Risks remain due to costs and requirements for scale but investors could start to include the segment as part of an overall energy allocation. Companies with an advantage in strategic acquisitions and management, like Blue Earth, should outperform though shares will remain volatile until earnings stabilize.

    DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results. This article contains the current opinions of the author and such opinions are subject to change without notice. This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. Neither the writer or distributor of this article have any positions in any of the companies named.

    Contact:

    Prime Equity Research, LLC

    www.primeequityresearch.com

    info@primeequityresearch.com

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: BBLU, CCC, PBW, FTEK, Energy
    Jan 13 1:43 PM | Link | Comment!
  • STATE OF PLAY: How Blue Earth, Inc. Is Unearthing Alpha

    December 18, 2012

    Prime Equity Research, LLC

    Financial Writer: Aimie Gresham

    Includes: BBLU, PBD, PBW, GEX

    STATE OF PLAY: How Blue Earth, Inc. is Unearthing Alpha

    Looking for the best Alpha low valuation, high growth company in the current EE market?

    One company to consider: Blue Earth, Inc., OTCQB (OTCQB:BBLU). The company focuses on renewable energy and energy efficiency services. With final projected revenue growth of approximately $11 million for 2012, and expected revenue of $100 million-along with anticipated EBITDA of $10 million-in 2013, we're betting Blue Earth is the best deal in the sector.

    How is Blue Earth providing a solid home for Alpha? The company has been aggressively acquiring other firms and technologies in the EE and RE markets over the last calendar year (2011 to 2012). When not approaching the market from an acquisitive position, the firm forms key joint partnerships; the latest of which is its agreement with Hareon Solar Technology Co., Ltd., to jointly develop a 497 kilowatt solar PV project on the island of Oahu in Hawaii.

    Hareon Solar Technology is one of the largest solar PV companies in the world, with six subsidiaries that specialize in high-end R&D, production and marketing of solar modules, wafers, silicon sticks and cells. The company also directly operates and invests in solar plants throughout the globe.

    Among BBLU's other investments is Castrovilla, Inc. (NYSE:CI). CI is fast becoming a statewide and regional supplier of utility scale EE market solutions through the customization of turnkey, vertically-integrated small commercial services to small businesses and local utilities.

    Yet another Alpha source BBLU has tapped into is Xnergy. Xnergy designs and implements energy saving projects-including identifying energy supplies and risk management-across the public and private sectors. The firm was rated the "#1 Alternative Energy Provider" by the San Diego Business Journal. Xnergy leverages its expertise in building and implementing cutting-edge offerings in fuel cells, solar and geothermal efficiencies.

    These and other investments made by Blue Earth have been further enhanced by the November 2012 passage of Proposition 39 in California.

    With a population of approximately 37+ million people (as of the last U.S. census 2010) the state of California is the frontier of U.S. energy efficiency. In the 2012 election, California voters passed Proposition 39 which closes an out-of-state corporate tax loophole, potentially leading to an increase of $1 billion dollars a year. Of this increase in revenue, in the next five years, $550 million per year will be dedicated to increasing the state's energy efficiency in retrofit, alternative energy project in public schools, colleges, universities and other public facilities. The dedicated revenue of $550 million can also be applied to financial and technical assistance for EE retrofits, job training and workforce development programs.

    Johnny R. Thomas, President and Chief Executive Officer of Blue Earth, Inc. was recently quoted in one of the firm's latest press releases, saying: "Closing the loophole means our industry should see a $500 million increase in energy efficiency and alternative energy funding at the state level for the next five years…Blue Earth as a comprehensive energy solutions provider for small commercial businesses and utilities in California, is in a great position due to its successful track record, to pursue developing and implementing energy efficiency and alternative energy programs for the newly created fund."

    Adding to potential revenue for the company is the fact that it will be mandated that any new EE projects be coordinated in conjunction with the California Public Utilities Commission and the California Energy Commission, as Proposition 39 will create a nine-member oversight board responsible for annual reviews and audits. These reviews and audits further enhance Blue Earth's position in the market, as the firm specializes specifically in such revenue generating services.

    With a market cap of $19.67 million and 19,471, 836 shares outstanding-as of December 10, 2012-it is not surprising that the firm is one of the yet to be discovered EE companies. Which brings us to the ETF market itself.

    For investors looking for Alpha in EE the three top ETF's around right now are PowerShares Clean Energy (NYSEARCA:PBW), which tracks and index of U.S. companies focused on clean energy and conservation, Van Eck Global Alternative Energy Fund (NYSEARCA:GEX), which tracks its index of global alternative energy companies and PowerShares Global Clean Energy Portfolio (NYSEARCA:PBD), which tracks global companies in the clean energy and conservation sector. It should be noted that PowerShares' PBW has the longest track record and has the most liquidity.

    Daily Volume (NYSE:K) Assets (NYSE:M)

    For Alpha seekers, who are not as risk adverse, the best bet remains in individual stock purchases, but for a balanced approach that still has plenty of upswing EE ETFs deliver. No matter the play, the advantage: Blue Earth, Inc.

    DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results. This article contains the current opinions of the author and such opinions are subject to change without notice. This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. Neither the writer or distributor of this article have any positions in any of the companies named.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: BBLU, Energy
    Dec 18 5:38 PM | Link | Comment!
  • PURE PLAY: Why Energy Efficiency Stocks Are Set To Rally

    November 16, 2012

    Prime Equity Research, LLC - Syndicated Financial News

    Financial Writer: Chris Engleman

    Includes:XWES,AMRC,BBLU,ENOC,LIME

    PURE PLAY: Why Energy Efficiency Stocks are Set to Rally

    New Executive Order, State Mandates, State Investments, Manufacturers Turn to Cost Savings & the Allure of Developing Markets.

    Many already consider today's energy efficiency market robust at $12 billion, but some are just realizing that the stars are aligned for massive future growth for this group. LBNL projects that the energy efficiency marketplace will reach practically four times its current size, at a whopping $45 billion over the next eight years. Also, energy efficiency can be considered a counter cyclical play, as economic headwinds and lower revenue at the federal, state and business level can bring a greater boom to energy efficiency fundamentals. In challenging environments, cost cutting is typically pursued and governments clamp down on expenses, which energy costs are keen targets. Meanwhile, the economic growth powerhouses of emerging markets like India, Brazil and China are largely overlooked in these initial growth equations. Hence, there is a very attractive optionality within developing markets.

    The energy efficiency science is sound and surprisingly advanced. Ratepayer-funded energy efficiency spending is estimated to increase at a CAGR of 16.1% from 2010 to 2015. However, energy efficiency is no longer small scale with homeowners and small businesses, as multinational companies, schools, hospitals and government facilities are stampeding into energy savings. Large blue chip early adopters like J&J, Pfizer, Abbott, among others, have only dipped their organizational toes into this market and massive scale applications are still on the horizon.

    According to the 2012 United Nations Industrial Development Organization Energy Resource Market Study, "most energy efficiency projects pay for themselves through generating savings, financing is usually needed to cover energy audits, energy advisory services, new energy efficient equipment, installation, and monitoring." Further, the study found that there was 'generally very high level of internal rates of return at a project level - with payback periods ranging from 0.9 to 2.9 years.' The study also concluded that "three-year projects reported an estimated mean IRR of 25%. As expected, the estimated rate rose with longer life spans - 37% for the 4 year case, 43% for the 5 years, and 50% for 10 years. These returns show higher profitability for energy efficiency projects in comparison with average returns in capital markets over similar timeframes."

    Just this year, there are has been some very big head turning developments for those in the energy efficiency field. For example:

    • New York Governor Andrew Cuomo announced in April 2012 that the state intends to invest $800 million to enhance the energy efficiency of state and local government buildings with a goal of reducing consumption by 20 percent over the next four years.
    • In August 2012, President Obama signed an Executive Order Promoting Industrial Energy Efficiency. The Executive Order also directs agencies to foster a national dialogue through ongoing regional workshops to encourage the adoption of best practice policies and investment models. The Order establishes a new national goal of 40 gigawatts of new combined heat and power capacity by 2020, a 50% increase from today. Meeting this goal would save energy users $10 billion per year, result in $40 to $80 billion in new capital investment in manufacturing and other facilities that would create American jobs, and would reduce emissions equivalent to 25 million cars.
    • China's energy efficiency industry is emerging as a high growth sector with the country projected to spend as much as Rmb2.1 trillion (USD300 billion) over the next five years on products and services that cut energy use.

    How can investors participate in this growth, what stocks to avoid and where to harness your horse for a potential stock run? We would suggest the pure-play energy efficiency providers can offer a focused investment. However, many of the larger providers in this space have already had a solid rally this year, while some have stumbled. Here are the Good, Not So Bad, and Ugly.

    Good. Some may be surprised by the only GOOD pure play pick of Blue Earth Inc. given the stock trades on the OTCBB (OTCQB:BBLU) and is perhaps one of the more junior players with the smallest market capitalization of $28 million,. Admittedly, this vote of confidence may partly be attributable to other peer stocks already at nose bleed heights and others having recent stumbles, yet overall the potential upside for Blue Earth is immense. Also, much of the pure play markets are smaller type companies, which in a sense, offers the greatest growth too. We will go into more detail on Blue Earth later, but to highlight the compelling investment catalyst: December 31, 2012 projected annual revenues of approximately $11 million, shareholders' equity of approximately $5.9 million, assets of approximately $12.5 million and 2013 projected revenues of approximately $100 million and EBITDA of approximately greater than $10 million.

    Not So Bad: World Energy Solutions (NASD:XWES) delivers best price energy to clients for a fee and has had five consecutive record revenue quarters, a history of positive net income, but the stock has also rocketed up by almost 80% to around $5.00 per share, or around $60 million market capitalization. Though the company is considered Good, the valuation places it in the Not So Bad category.

    Not So Bad: Ameresco (NASD:AMRC), with a $500 million market capitalization, but last quarter's revenues turned flat at around $165 million last quarter and income dropped, making its 18.5 price-earnings look lofty even after the stock sold off.

    Not So Bad: EnerNOC (NASD:ENOC) manages energy demand for clients to earn incentives (Demand Response) from utilities. However, revenue has faltered, with reported revenue of $33.3 million last quarter, which was 44% lower than the prior-year quarter's $58.9 million. Also, analyst consensus has revenue projections for next quarter as flat, but with 9.6% earnings growth.

    Ugly: Another stock offering AMRC service to improves energy efficiency and renewable energy systems has been badly bruised by the markets this year is Lime Energy Co. (NASD:LIME). The company has had some dilutive financing, shareholder lawsuits targeting misstated financials, and delisting chatter by the SEC.

    With the market growth funded by prepaid ratepayer surcharges of $6 billion to over $10 billion by 2015, the profit and sales opportunity for energy efficiency stocks couldn't be better. Add the regional state mandates to replace 33% of fossil fueled power with alternative energy and we have gangbusters potential for those established market players.

    Although many of the companies discussed will also benefit from the money rolling into this space, Blue Earth Inc. (OTCBB: BBLU) has the right balance between low valuation and high market growth. The Company has been acquiring technology and energy saving entities in this marketplace, including Castrovilla, Inc. (energy efficiency in refrigeration, utility program) and Xnergy, Inc.(efficiency cost reduction for HVAC, lighting & alternative energy). BBLU has also marked some recent high level revenue deals: closed on 497 kilowatt project in Hawaii, acquired exclusive rights to 3.5 megawatts DC of Solar PV projects in Hawaii, executed on three life science projects, closed a joint development with Greenwood Biosar for 1MW of Solar PV projects in California valued at $4.2 Million, energy savings for 7-11 stores & Carl's Jr., among others.

    DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results. This article contains the current opinions of the author and such opinions are subject to change without notice. This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Prime Equity Research has been paid to write and distribute this article. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. Neither the writer or distributor of this article have any positions in any of the companies named.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Dec 03 5:34 PM | Link | Comment!
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