by Tom Konrad, Ph.D., CFA

Of the few survivors of the dot com bust, Ebay (EBAY) is a perennial also-ran.  It owned the market for consumer-to-consumer (C2C) transactions in 2000, but has since repeatedly lost market share.  Nevertheless, the company remains a profitable business that enables the sustainable reuse of easy to ship items while returning cash to investors.

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The Competition for Sellers

In the early 2000s, Ebay lost sellers to Amazon’s (AMZN) marketplace, which had the advantage of getting listings in front of a larger group of buyers, and has since added more services for sellers, such as delivery services through Amazon’s impressive logistics arm.  More recently, specialist competitors like Etsy (ETSY) for crafts , and PoshMark for fashion have attracted younger users who prefer an app-based interface.

Many sellers prefer Ebay for its lower fees compared Amazon and other competitors, and its pure customer to customer model means that it has no inventory or warehouses, and its operations are not disrupted by trying to maintain social distancing.   Other sellers list on multiple platforms, but offer better prices on Ebay because of the lower transaction fees.

This is why I believe that social distancing is an opportunity for Ebay to claw back some market share from Amazon.  The stories of third party sellers being second class citizens on Amazon’s platform have been prevalent for years, most notably Amazon using its data to directly compete with third party sellers in any category that it starts to see as particularly profitable.  Sellers can succeed quickly through access to Amazon’s legion of buyers on its Marketplace, but if they become too successful, they will likely find themselves competing with Amazon itself.

Sellers discovered another problem with their reliance on Amazon when the company decided to prioritize the delivery of “essential” items in March.  While prioritizing life saving items over toys and knick-knacks is likely a good use of Amazon’s overtaxed warehouse workers, this is small consolation to a small online seller who needs the income to buy their own essential items.  These frustrations will likely lead sellers to be less likely to trust all their eggs to Amazon’s basket.

Looking Forward

Ebay’s revenues, and number of sellers and buyers have been basically flat in recent years, and the company did not expect that to change when it issued its guidance for 2020 at the end of January.  The company did expect single digit earnings per share growth, driven mostly by share repurchases.

Those share repurchases and the new dividend were motivated by activist investors who have forced the company to start returning value to shareholders in the absence of growth.  The company now has a new CEO and two new board members nominated by the activists.  They have also led Ebay to consider the sale of some of its properties, including the very fortuitously timed sale of StubHub for $4.05 billion (approx $5/share) in February.  Further shoring up the balance sheet, Ebay followed this sale by refinancing and extending the term $1 billion of its senior unsecured debt with lower interest notes due in 2030.

Before the crisis, the expectation had been that Ebay would use its strong cash position to invest in its platform, and accelerate its stock buybacks.  The new reality means that Ebay is in a good position to be a consolidator by buying up less well prepared rivals.

Sustainability

For me, “Reduce, Reuse, Recycle” is not just an alliterative list of sustainable actions which I incorporate in my personal life, it’s also a list of investing themes I try to incorporate in my portfolio.  For reduce, I have stocks that incorporate energy efficiency like Hannon Armstrong (HASI) and Ameresco (AMRC).  For recycle, I have Umicore (UMICF, UMICY, UMI.BR), Schnitzer Steel (SCHN), and Greystone Logistics (GLGI).  The essentially anti-consumerist nature of reuse makes it a particularly difficult investing theme to participate in.

I’ve wanted to include Ebay or another C2C marketplace as the first “Reuse” stock in my portfolio for a long time, but until recently, Ebay’s valuation and lack of dividend have kept me away.  The recently initiated dividend and stock decline have changed that.  Combine that now with potential opportunities to claw back market share from Amazon and potentially purchase distressed rivals, and I’m buying.

Or at least I’m selling cash-covered puts on Ebay.  I like to think of buying a stock as a bet that it will go up, or, if it doesn’t, that the dividend will exceed any decline.  Selling a cash-covered put, or buying the stock and selling a covered call are similar strategies that I think of as bets that the stock will not fall permanently.  If the stock falls below the option strike price, the investor will own the stock at a cost below what it was trading at when the bet was made.  If the stock rises, the investor keeps the option premium and cash.

In terms of Ebay’s prospects, the company is cash rich, and its operations are unlikely to be disrupted by the pandemic.  It may even see some upside.  The loss of income for too many people in this crisis will lead some to explore new ways to earn cash.  Selling off unneeded stuff on online platforms is an easy and quick option, especially people who want to avoid in person transactions.

Trading

Good valuation, a strong balance sheet, opportunities arising from people staying at home, and overall sustainability all led me to use a cash covered Ebay put as a new position in my 10 Clean Energy Stocks model portfolio at the start of the month.

The market and Ebay stock fell the following day, and have since recovered, so readers who follow the model portfolio would have had an opportunity to make the trade.  If you missed that window, I expect the market to remain volatile in both directions for months to come as investors sort out what this pandemic and the response to it mean for the economy.

It is that expected volatility that leads me to prefer cash covered puts to the direct purchase of stocks in current market conditions.  If your account does not have sufficient options permission to sell cash covered puts, purchasing the stock and selling a covered call has the exact same risk/reward profile.

If you do not have options permission at all, watching several stocks you think are good prospects and starting with a small position which you increase if the stock falls is probably the best option.  Unfortunately, that strategy is difficult for anyone who does not pay daily attention to the market.

Disclosure: Long HASI, EBAY, UMICF, SCHN.  Small long positions in AMRC and GLGI.

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.

The post Ebay: A Sustainable Social Distancing Stock appeared first on Alternative Energy Stocks.

Car manufacturers have fully embraced self-driving or autonomous cars.  It is not because they have heard a loud clamor for such technology from consumers.  No, automakers are keen on the idea because manufacture of self-driving cars could help them overcome the short comings of highly cyclical sales pattern associated with its car dependent upon a single driver.  In other words, they are in it for themselves whether consumers benefit or not.

If consumers are not so important, at least investors should benefit. Besides the car manufacturers there are a few smaller companies that can give investors a taste of the self-driving car phenomenon.

LiDar and Sensors

Self-driving cars will not go far without guidance input about its immediate environment.  LiDar is a surveying method works much like radar, but uses pulsed laser light to illuminate a target and then measure the reflected pulses with sensors. Differences in laser return times and wavelengths are then used to create three dimensional representations of a target.  Such systems show great utility for controlling autonomous vehicles.

A key player in the LiDar field is LedderTech, a privately-held developer of sensor technology.  LedderTech just landed a $24 million bridge financing in the form of a revolving loan from Desjardins Group and a convertible note from Desjardins-Innovatech.  Expect LedderTech to come back to the capital market in the coming months to secure a longer-term financing.  In September 2017, the company closed a $101 million venture capital round that included investments by Osram Licht AG (OSR:  DE), Aptiv and Integrated Device Technology (IDTI:  Nasdaq).  GCA Advisors acted as the placement agent for the earlier round and could be a likely conduit for investors seeking a spot in LedderTech’s next financing.

New car technologies are not just in the hands of high risk startups.  Headquartered in Ireland, Aptiv Plc. (APTV:  NYSE) manufactures electronic components and safety technology for cars and commercial vehicles.  Aptiv was previously called Delphi Automotive and is the remaining business after spin out of Delphi’s legacy power train division.

What is left in Aptiv is the company’s autonomous vehicle technology.  Aptiv deployed thirty self-driving BMWs in Las Vegas for use in a network service sponsored by the on-demand transportation service Lyft.  The cars are outfitted with Aptiv’s LiDar and ultrasonic sensors.  After a four-month trial period, Aptiv celebrated a record 96% of riders giving the service a five-star rating.

Aptiv is fortified with acquired technology as well as its own.  Aptiv paid $450 million to acquire nuTonomy, a technology spin-out of the Massachusetts Institute of Technology.  Just like Lyft, nuTonomy has its eye on the nascent market for ‘automated mobility on demand.’  Lyft also deployed nuTonomy’s software solution in a car ride service in Boston.

Aptiv represents an old school company with a new age product line.  As such it presents a particularly compelling way to participate in the autonomous vehicle growth opportunities.  The company reported $1.0 billion in net income or $4.05 per share on $14.2 billion in total sales in the twelve months ending September 2018.  Aptiv is even mature enough to have established a dividend that delivers 1.4% yield at the current price level.

Lyft of its Own

Since partnering with Aptiv and several others with autonomous driving technology, Lyft made a strategic decision to develop its own technologies.  Building its experience in Las Vegas with the automated car service, Lyft appears poised to become a strong player in not only a competent service provider, but also a technology leader.

Privately-held Lyft is reportedly planning an initial public offering in 2019. Until then investors could tap into Lyft’s ambition through its various investors.  One is option is Canada’s Tier One auto parts manufacturer Magna International, Inc. (MGA:  NYSE).  Lyft received a $200 million investment from Magna as part of a $1.0 billion venture capital round led by Google’s CapitalG.  The deal valued Lyft at $11.7 billion, providing the hint of a very exciting IPO!

Watchful Eye

Collision avoidance is important for self-driving cars and driver controlled cars alike.  Intel’s subsidiary Mobileye Vision Technology Ltd. based in Israel has taken a lead in developing an advanced driver assistance system that is marketed to fleet owners such as trucking companies, law enforcement and bus line operators.  Intel claims Mobileye has captured as much as 70% of the market for driver assistance systems that have been included on at least 27 million cars already on the road.

Mobileye really did not capture anyone’s attention until it landed a contract to supply an upgrade of its EyeQ4 to as the eyes of automated cars. Mobileye reportedly was in direct competition with Nvidia Corporation (NVDA:  Nasdaq) for the order.

Of course, the only way to get a stake in the ‘eyes’ of autonomous cars is to buy shares in its semiconductor industry partner, Intel (INTC:  Nasdaq). There are worse investments.  Intel delivers 21% return on equity and its dividend currently provides a 2.6% yield.

Mobility as a Service

If a large semiconductor company with interests in automotive components is not appealing, private-held Zoox, Inc. might be an alternative. Zoox is a very early stage company with lofty goals for autonomous driving technology and mobility services.  Zoox distinguished itself by become the first company to be allowed to test driverless cars in California with real passengers.  The company wants to debut a ride-hailing service using autonomous vehicles as early as 2020.

It is an ambitious goal and that takes money.  Zoox has already raise a total of $800 million in two venture capital rounds.

Before investors start writing checks to invest in Zoox, the risks of an early stage operation should be fully considered.  The company has none of the stuffy protocols of an established operator like Intel or Aptiv.  However, there is still a bit of instability at Zoox as evidenced by the firing one of its founders just a few weeks after the closing of the round one financing.

These are dozens of companies, large and small, homing in on autonomous driving and the services that could develop using the technology.  The movement portends a significant change in the automotive industry as well as transportation fuel.  The individually directed car and its combustion engine have been a central part of modern American culture.  The muscle car of the fifties and all its attendant images of machismo and power is likely to become a thing of past.  It will be interesting to see what imagery advertisers and brand managers conjure up for the car that does everything.

Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries. Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

This article was first published on the Small Cap Strategist weblog on 12/21/18 as “Stake in Autonomous Cars.” 

The post Less Well Known Autonomous Car Stocks appeared first on Alternative Energy Stocks.

There is a clutch of self-driving cars and cars with autonomous driving features on the market today.  Drivers just cannot seem to get enough of them.  Apparently, the idea of zooming down the highway with little to no responsibility holds considerable appeal.  Then again, maybe it is the novelty of the idea that will eventually give way to the next fad.

In August 2018, Cox Automotive revealed the results of a survey that found fewer Americans are embracing self-driving technology than previously thought.  A surprising 49% of respondents said they would NEVER own a fully-autonomous car.  This is up from 30% naysayers two years ago. Views on the safety potential in self-driving cars have shifted as well.  The Cox survey found that 45% of the respondents in the recent survey believe the roads will be safer with self-driving cars.  The confidence level was 63% two years ago.

Why have automotive manufacturers put so much time, effort and capital into a technology that is losing favor with consumers at such a fast pace? According to the Brookings Institute by the end of third quarter 2017, over $80 billion had been invested in technology to deliver cars with various levels of driving autonomy.  CB Insights reports another $4.2 billion was invested in the first nine months of 2018.

Automotive manufacturers are certainly not responding to a clamor for autonomous driving from consumers.  Interest in self-driving cars really came first from the U.S. military where automatic vehicle deployment could help keep soldiers safer.  Over half of casualties in combat zones involve military personnel making critical deliveries of fuel, food and supplies.  Car makers grabbed onto the idea because production of self-driving cars could help them overcome the short comings of highly cyclical sales pattern associated with its present production lines.

Unlike the cars we know today that are the equipment of an individual driver, autonomous driving cars could be operated collectively.  Certainly individuals could still own or lease a car, but likely the technology could give rise to various service models for transportation and delivery. Consequently, the buying decision could shed its cyclic nature, giving automotive manufacturers hope for consistent revenue throughout the year.

Automotive manufacturers are certainly willing to dictate to consumers what they want, not because the product is a good for consumers but because the product has great advantage for the producer  –  consistent quarterly earnings that drive stock prices!  All of a sudden the $80 billion investment seems like a bargain.

History has recorded ambitious manufacturers as winners and we expect a repeat.  Autonomous driving cars could be a compelling investment opportunity.  The early entrants to the competition have been the most popular so far:  Tesla (TSLA:  Nasdaq), Alphabet (GOOG:  Nasdaq), Audi AG (NSU:  DE), and Toyota (TM:  NYSE) to name just four.

In the next post we explore a few less obvious options.

Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries. Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

This article was first published on the Small Cap Strategist weblog on 12/18/18 as “Manufacturers Going All Out for Self-driving Car Tech.” 

The post Manufacturers Going All Out for Self-driving Car Tech appeared first on Alternative Energy Stocks.

Alternative Transportation Stocks are publicly traded companies that offer transportation options that use less fuel per passenger-mile or freight-mile than traditional options. Includes mass transit (both rail and bus), bicycles, and two wheel vehicles.

A. P. Moller – Maersk Group (MAERSK-B.CO)
Accell Group (ACCEL.AS)
Blue Bird Corporation (BLBD)
Bombardier Inc (BDRBF)
Construcciones y Auxiliar de Ferrocarriles (0MK5.L)
CSR Zhuzhou Electric Locomotive (ZHUZF)
Canadian National Railway Company (CNI)
Canadian Pacific Railway Limited (CP)
CSX Corporation (CSX)
Cubic Corporation (CUB)
Dorel Industries (DIIBF)
Firstgroup, PLC (FGP.L)
Giant Manufacturing (9921.TW)
Grande West Transportation Group Inc. (BUS.V)
Great Lakes Dredge and Dock (GLDD)
Greenbrier (GBX)
L. B. Foster (FSTR)
Merida Industry Co. Ltd. (9914.TW)
National Express Group (NEX.L)
New Flyer Industries (NFYEF, NFI.TO)
Norfolk Southern Corp. (NSC)
Piaggio & C.S.p.A (PIAGF)
Power REIT (PW), Power REIT 7.75% Series A Cumulative Preferred (PW-PA)
Seaspan Corporation (SSW), Seaspan Cumulative Preferred (SSW-PG,SSW-PH,SSW-PD)
Shimano, Inc. Ltd. (SHMDF)
Stagecoach Group PLC (SGC.L)
Stella Jones (STLJF)
Tandem Group PLC (TND.L)
Trinity Industries (TRN)
Union Pacific Corporation (UNP)
Vossloh AG (VOS.DE)
VMoto Limited (VMT.AX)
Wabtec Corporation (WAB)

If you know of any alternative transportation stock that is not listed here, but which should be, please let us know in the comments. Also for stocks in the list that you think should be removed.

The post List of Alternative Transportation Stocks appeared first on Alternative Energy Stocks.

by Debra Fiakas CFA

Unmanned aerial vehicles (UAVs) had their starting point in military exercises, carrying surveillance cameras and even bombs to sensitive sites.  Drones as we have come to call them have also zoomed across the horizons of adventuresome consumers, who see sport and entertainment possibilities.  However, drones offer time and cost savings, quality and accuracy in data gathering and safety to a host of scientists, engineers and infrastructure operators. 

According to industry research firm Markets and Markets, the unmanned aerial market is estimated to be $13.2 billion in the current year and has the potential to reach $28.3 billion by 2022.  A good share of the 13.5% compound annual growth is expected to be driven by new demand for agricultural and environmental applications.  Indeed, Price Waterhouse Coopers estimates the addressable market for drones in the agriculture market alone could reach $32.2 billion by 2025.  The PWC market size estimate seems to eclipse Markets and Markets figures.  At least Markets and Markets agrees that agriculture is the dominant growth driver for UAVs, with an estimated 30% compound annual growth estimate for the this sector through 2022.

While UAVs might not rise to the level of the electron microscope as a breakthrough technology enabling transformative innovation, it is a tool that could deliver significant energy savings and economic benefits.  For investors with a focus in energy, environment or conservation, a stake in a UAV producer should be interesting. 

Small UAVs have reached a price level delivering a cost effective way to collect high resolution images that can inform farmers, animal control personnel or environmentalists.  UAVs can be deployed rapidly to even the most remote locations.  Farmers can detect water and nutritional stress or monitor insect damage.  Wildlife authorities can observe poaching activity in real time, giving them the chance to capture perpetrators in the act.  Scientists are gaining access to data on plants and animals in even the most remote and inaccessible terrain or conditions.
Aerovironment (AVAV:  Nasdaq) has had a berth in our Mothers of Invention Index of companies offering innovative technologies that save energy or otherwise impact resource utilization. It is the largest supplier of UAVs to the U.S. military and is gaining a reputation around the world as a producer of reliable commercial drones.  The company offers a half dozen different UAV models, from the solar-powered Helios with its 247 foot wingspan to the ‘bird-sized’ Nano Air Vehicle.  The Raven was originally deployed by the U.S. military, but is also useful in commercial applications as well.  With a wingspan of 4.5 feet and total weight of 4.2 pounds, the Raven can be launch by hand and deliver aerial observations up to 10 kilometers by either a daylight or infrared camera.

The company delivered $253.3 million in total sales in the twelve months ending July 2016, providing $4.3 million in net income or $0.18 per share.  As much as 4.2% of sales were converted to operating cash flow during this period, helping bring cash on the balance sheet to $224.1 million.  Aerovironment has no debt and is able to use its ample internally generated cash for new product development. 
AVAV has a follow of at least a half dozen analysts who have published estimates of its future sales and earnings.  In the quarter ending July 2016, Aerovironment disappointed investors with a deeper than expected loss.  The bad news caused analysts to trim expectations for the quarter ending October 2016, but long-term expectations remained intact.  The consensus for the current fiscal year ending April 2017 is for $0.52 in earnings per share on about $290 million in sales. 

Financial results for the October quarter are expected this week.  Expect analyst to ask management about its most recent product innovation, the Quantix, which was introduced at the Drone World Expo in California.  Quantix has been designed to deliver efficiency and convenience.  It can collect high-resolution images on at least 400 acres of land during a single flight and then transmit the data to a cloud-service.  Users can access the data through a companion tablet.  The Quantix model is aimed primarily at, guess who  –  farmers!   Anyone who has ever had to walk a corn field looking for signs of drought or bugs will understand the appeal of a fast moving drone with a high resolution camera.  Not yet priced, Quantix is expected to contribute to revenue in last fiscal year 2017 or early fiscal year 2018.

Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

The post Aerovironment’s New Farm Worker appeared first on Alternative Energy Stocks.

John Petersen

Last week I spent a couple days with ePower Engine Systems working my way through a variety of business and technical due diligence issues. As always happens with new clients, it was a full immersion course in how ePower’s technology works, what the documented performance of the current tractor is, and how that performance is expected to change as ePower:

• transitions from a four cylinder engine designed for stationary use to an EPA compliant six cylinder engine designed for the trucking industry;
• automates a new charge control system that will opportunistically charge the batteries in a more fuel efficient manner;
• evaluates the potential economic and performance advantages of using a rare earth permanent magnet generator instead of a conventional AC generator; and
• evaluates the potential economic and performance advantages of using a rare earth permanent magnet drive motor instead of a conventional AC induction motor.

ePower’s original development work was done using a 197 hp John Deere diesel engine and a Marathon generator with a rated capacity of 115 kW that can be over-rated to 128 kW for brief intervals. In all but the most extreme conditions, the ePower tractor is designed to minimize generator over-rating by using an array of 56 PbC batteries from Axion Power International (AXPW.OB) for acceleration and hill climbing boost.

Since the current John Deere engine was designed for stationary use with a generator, it is not EPA compliant and its horsepower rating does not account for parasitic engine loads like power steering, air conditioning, airbrake compressor and other accessory and hotel loads. As a result, the maximum sustained generator output of the current tractor is about 93 kW.

ePower recently bought an EPA compliant 240 hp on-road Cummins diesel engine that was salvaged from a wrecked truck. Unlike the John Deere engine, the Cummins engine is rated on net useful horsepower at the flywheel after parasitic loads. It’s 32 pounds lighter than the John Deere engine and has an advertised fuel consumption of 6.8 gallons per hour at 1,800 RPM. With the Cummins engine, ePower believes they’ll be able to run their existing generator at full capacity without difficulty.

Over the last several months ePower has been conducting fuel economy testing of their current tractor in the Cincinnati region. The topography is best characterized as gently rolling hills with grades of 1% to 3% and typical altitude changes of up to 300 feet. The fuel economy tests were conducted according to SAE J1321 protocols using multiple trips over several 40 to 46.5 mile routes with city, suburban and highway profiles. Data was recorded at average speeds of 55 and 59 mph and any results that deviated from the average by more than 5% were excluded.

The blue bars in following graph show the documented fuel economy of the ePower tractor with a variety of loads ranging from empty to fully loaded. The red blocks at the end of the current fuel economy bars represent ePower’s estimates of the incremental fuel savings that should be realizable with (1) the six cylinder Cummins engine upgrade, (2) automation of the charge control circuitry, and (3) integration of a rare earth permanent magnet generator.

For purposes of comparison, the graph also includes a single line for the national industry average across all weight classes and the goals of the DOE’s Supertruck program.

Since ePower’s ongoing work is by nature a research and development project, there can be no assurances that the planned tractor upgrades can be completed over the next several months or that the third generation tractor will meet current performance expectations.

Disclosure: Author is a former director of Axion Power International (AXPW.OB) and holds a substantial long position in its common stock. Author has recently accepted an engagement to serve as legal counsel for ePower Engine Systems in connection with certain business planning and corporate finance activities.

The post What I Learned During Last Week’s Visit With ePower appeared first on Alternative Energy Stocks.

Tom Konrad CFA

This article was first published on the author’s Forbes blog on June 24th.

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 reliabl
e, but not guaranteed.

The post New Flyer Consolidates Leading Position in Transit Bus and Parts Markets appeared first on Alternative Energy Stocks.

Tom Konrad CFA

An earlier version of this article appeared on the author’s Forbes blog on June 3rd.

An article about Power REIT (NYSE:PW) that came out on Seeking Alpha on May 30th has sent some investors running for the hills. 

The article has since been removed from Seeking Alpha.  According to PW’s CEO, David Lesser,  Seeking Alpha’s editorial staff concluded that it had reached unsupported and erroneous conclusions after discussions with him and Ryan Griffin, the article’s author.  Ryan Griffin told me that he did not have time to respond to the information Lesser sent Seeking Alpha challenging his conclusions.  He was confident that, when he has time to respond, the article will be reinstated.  However, he also told me that his goal was to get the article to be reinstated by “Monday or Tuesday” (6/10 or 6/11) and that had not happened.

Even if the article is reinstated, I disagree with its conclusions, and I doubt the opportunity to buy this speculative Rail/Renewable Energy REIT in the $9 range will last long.  The stock is very illiquid, so even a few investors bailing or buying can send the stock for great swings. 

Here, I’m going to try to address the main points of the article, without going into details.  

The core of Griffin’s argument was that investors are not considering the risks inherent in the civil action brought by Norfolk Southern Corp (NYSE:NSC) and Wheeling and Lake Erie Railroad (WLE) against Power REIT to prevent the latter from foreclosing on the lease of 112 miles of track it owns, and which are leased to NSC and subleased to WLE.

I am probably the main person Griffin is referring to here, since I wrote in December how the lawsuit would be good for Power REIT even if they lose the case.  The reason for a “lose” being good is that, even in a loss, Power REIT will be able to write off $16 million or more in the form of debt from NSC and WLE that they are trying to collect, and this will allow them to distribute future dividends to shareholders in the form of tax-free return of capital for decades to come.

I also believe that in a “loss” WLE and PW will be liable for Power REIT’s legal expenses, because of a clause in the lease saying that the lessee is responsible of any legal expenses incurred to protect its interests in the the leased property.  Griffin thinks this is not so clear.

I think that, at the $10-$11 range PW was trading at, the benefits of a “loss” were fully priced in to a stock.  Those of us who still think PW is worth holding at those prices are indeed valuing the hope that PW will win on at least some of the points they have made against the lessees.  Before Griffin’s article, PW was actually gaining ground because some recent revelations about WLE selling oil and gas leases on PW’s land and not providing records to PW as required by the lease which seem to strengthen PW’s case.

Griffin also felt that the first solar deal was “uneconomic,” citing a “70x multiple” and claimed that this deal could drive PW into bankruptcy.  His numbers don’t seem to add up.

By my calculations, the deal would only be uneconomic under the bridge loan currently used to finance it if significant SG&A expenses are charged against it.  When the bridge loan is refinanced, I expect it to be modestly accretive to earnings.  Griffin’s statement that the project had a “70x multiple” does not agree with my calculations at all: The $1.04 million purchase came with a $80,800 annual rent (with a 1% annual escalation.)  After accounting for the assumption of a 5%, $122,000 sewer financing which was taken on as part of the purchase price, I get a price to net revenue multiple of 12.25x.

I, like Griffin, don’t like PW’s CEO David Lesser loaning money to the company at 8.5% interest, which was the step-up rate on the bridge loan he used to finance the deal.  However, according to Lesser, the bridge loan has been revised to remove the step-up in interest rate (leaving the initial 5% interest rate), and PW has recently signed a term sheet to replace the loan with bank financing. I expect more details on this financing soon. Future solar deals should be larger, and bank financing easier to obtain when the legal mess is wound up.  Even if PW were paying 8.5% on the bridge loan after the first six months, there would still be a net profit (before SG&A expenses) of $26,794 in the first year on the $115,000 cash PW put into the deal.  In the second year, profit would fall to $6,700 because of the step up in interest in the bridge loan, slightly offset by the 1% annual rent increase, but future profit would trend upward even in the event PW is not able to obtain more attractive financing.  To me, it seems unlikely that PW will have to pay 8.5% to refinance the deal, and the difference from a lower interest rate would go directly to profit.

If the whole deal were to be financed at a 5% interest rate, PW’s annual net profit would be $29,100, and this would increase in subsequent years.

I don’t see how this deal, which looks marginally profitable even under an 8.5% bridge loan, could drive PW into bankruptcy, as Griffin claims.

Griffin made a number of other points which I consider less core to the argument, but I will attempt to respond to them briefly:

• PW cut its dividend to $0.  Griffin thinks this is a bad thing, but I think it is a good thing.  I, and at least one other professional investor I have been in contact with, suggested the cut to Lesser.  We felt that as long as the lawsuit was using most of PW’s cash flow, PW should not be issuing stock and diluting current shareholders just to pay a dividend.
• The civil case could last for years of appeals during which time PW will have to issue stock to pay legal bills.  While this is possible, and NSC can fund the lawsuit forever without even really noticing the cash flow drain, WLE does not have NSC’s financial strength.  The fear of having to pay PW’s legal bills as well as its own will be a strong incentive on WLE to settle, especially if the initial rulings are not in its favor.  If the initial ruling is in WLE and NSC’s favor (and a Summary Judgement could be handed down as soon as August or September,) PW will not drag things out.  The costs of the case are also likely to fall after the end of the discovery and expert witness phases, currently scheduled for the start of July.  See PW’s recent litigation update [PDF].
• WLE can pay for the lawsuit longer than PW can, but can’t afford to pay if PW wins. These two statements seem to contradict each other, and NSC is on the hook for at least $7M of the settlement account, and possibly for the entire sum of any award, since NSC is the lessee, and WLE is only a sub-lessee.
• Shareholder trying to remove Lesser in previous years.  Griffin seems unaware that while a shareholder group unsuccessfully challenged Lesser for control of the com
  pany in 2011 and 2012, there was no such attempt this year.   He did not mention that the lead shareholder of this group had a tiny holding of stock, and was trying to get WLE’s President on PW’s board – a clear and undisclosed conflict of interest.
• Griffin says PW is suing WLE and NSC.  This is false: WLE and NSC brought the civil action against PW to prevent PW from foclosing on the lease.  This makes a difference since Griffin’s worst-case scenario revolves around PW having to pay their legal bill because it brought a lawsuit that might be found spurious.  But PW did not bring the lawsuit, and given WLE’s apparent multiple violations of the lease, PW’s claims and grounds for foreclosure seem far from spurious to me.

Conclusion

PW is a very illiquid stock that was driven down 25% by panic selling.  Although Griffin points to very real risks, his price target is laughable.  Lesser seems to agree with me, and he is putting his money where his mouth is.  He has been adding to his position all along, but has made much larger purchases since the Griffin article came out.

By the way, Lesser is very accessible to investors.  As I said, I have very little time this week, but if you want more details, I suggest you contact him directly.  I’ve been trying to persuade him to make all the public filings in the civil case available on PW’s website.  He’s been helpful at emailing it to investors who do not have a PACER account (or don’t want to pay $1 a page.)  If readers inundate him with requests for documents, I bet he will get on this sooner rather than later.

Disclosure: Long PW.  I have added a little to my position recently in the around $8.42 for short term trading purposes, and may sell these shares at any time; I have GTC limit orders in place to do so.  My much larger long term stake remains intact. 

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.

The post Another Chance To Buy Power REIT On The Cheap appeared first on Alternative Energy Stocks.

Tom Konrad CFA

Performance contractor Ameresco, Inc. (NYSE:AMRC) reported earnings on May 9th. Revenues were below analyst expectations, but Chairman, CEO, and President George Sakellaris put this down to timing issues, and stuck by his full year guidance. Strong growth in the firm’s backlog and awarded project’s seem to back up this relatively optimistic view.  From the earnings call transcript

[W]e are very confident about the improving market conditions in few of our regions, as well as continued growth in our all other offerings. These are expected to be the growth drivers for the near-term. We are also very confident about the medium to long-term pipeline development, as shown by the continued increase in awarded projects. Where we are cautiously optimistic near term, is the select areas where we continue to see softness in the awarded project conversion rates. The varying conversion rates at the local level lead us to believe that overall market conditions will improve gradually over time. We continue to believe, however, that energy efficiency represents a large growth opportunity over the long-term. We are excited about our own growth or potential within this market opportunity, given our leadership role, as well as our current pipeline development. As a result, we are very optimistic about the long-term fundamentals of our business.

Sakellaris’ comment re-affirm my view of the company, which I have been repeating all year.  At $7.50, this is a great opportunity to acquire one of the leading companies in the energy efficiency space.

Leading North American transit bus manufacturer New Flyer Corp (TSX:NFI, OTC:NFYEF) reported increased revenue on higher bus deliveries and the acquisition of Orion’s aftermarket parts business.  The company continues to grow its backlog rapidly, and demand for new buses looks likely to remain strong, despite a 5% cut in US federal funding for transit buses due to sequestration.   Bus ridership and state tax revenues (which also fund bus purchases) have been strong.

The company continues to look for attractive acquisition targets (such as Orion’s parts business), to be funded by the investemtn from Brazillian bus manufacturer Marcopolo announced in January.

New Flyer expects to maintain its current C$0.585 annual dividend.

Green Building company PFB Corporation (TSX:PFB, OTC:PFBOF) also announced first quarter results.  Year over year, comparable revenues and earnings were slightly down from the first quarter last year.   In my opinion, this is most likely due to the much colder weather than in 2012, which would have slowed building conditions.  Going forward, I expect to see earnings growth for the rest of the year. The first quarter also included a previously announced sale and leaseback of four of PFB’s Canadian properties, resulting in a one-off after tax gain of C$6.2 million, or 92 cents a share.  The proceeds will be used to pay off all PFB’s debt and pay a special C$1 dividend, in addition to its regular C$0.06 quarterly dividend.

Management has good reason to return cash to shareholders when they can: the company is 70% owned by insiders.

Oh, yeah, and Tesla (NASD:TSLA) also announced very strong earnings.  Long time readers know I don’t follow “popular” stocks, but I’m happy to see good news for electric cars. The fairy dust from high profile stocks like Tesla tends to fall on all green stocks, and increase valuations across the board.

Disclosure: Long AMRC, PFB, NFI. 

This article was first published on the author’s Forbes.com blog, Green Stocks on May 9th.

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.

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by Marc Gunther.  First Published on Yale Environment 360

Electric bicycles are already popular in Europe and in China, which has more e-bikes than cars on its roads. Now, manufacturers are marketing e-bikes in the U.S., promoting them as a “green” alternative to driving.

Most Americans know about Tesla [NASD:TSLA], the Chevy Volt, and the Nissan Leaf. But what about Evelo, the eZip Trailz, and the Faraday Porteur?

The first three are, of course, electric cars. They benefit from a lot of media attention and generous government subsidies, including a $7,500 tax credit for buyers in the United States. The latter are electric bicycles, and they attract neither.

Yet Americans bought as many electric bicycles as they did electric cars last year. About 53,000 electric bicycles were sold, according to Dave Hurst, an analyst with Navigant Research who tracks the industry. Electric car sales came in at 52,835.

Globally, electric bicycles outsell electric cars by a wide margin. An estimated 29.3 million e-bicycles were sold in 2012, with perhaps 90 percent of those selling in China, which has more electric bikes than cars on its roads. E-bicycles are popular in Europe, too, selling about 380,000 a year in Germany and 175,000 in the Netherlands in 2012. By comparison, about 120,000 electric cars were sold worldwide.

All of which raises a question: Can electric bicycles help solve big environmental problems? The industry which is making a push to expand its sales in the U.S. says e-bicycles will reduce greenhouse gas emissions, air pollution, and traffic congestion, while enabling Americans, two-third of whom are obese or overweight, to become more active. In Europe and China, most electric bicycles are sold to commuters, although it’s not clear whether they are replacing conventional bikes, mopeds, or cars.

E-bicycle makers eagerly market themselves as “green.” Dashboards on e-bicycles sold under the Polaris brand and made by a Miami-based company called EVantage include a “carbon footprint savings” function to calculate how many pounds of CO2 are saved by using the bicycle in place of a gasoline-powered car. Evelo, a Boston-based startup, recently launched a 30-day electric bike challenge, asking people to give up their car keys and blog about using their electric bikes. “We don’t want to wean people from bicycles,” says Boris Mordkovich, Evelo’s founder, who previously worked at car-sharing company RelayRides. “We want to wean people from cars.”

Yet if electric bikes end up replacing human-powered bikes, or if they are used only for exercise or fun, they could well add to pollution because they consume electricity, much of which comes from burning fossil fuels. Only if electric bicycles replace cars will their environmental benefits materialize and that’s the goal, say bike makers.

“Traditionally, people don’t use bikes for transportation,” says Larry Pizzi, the president of Currie Technologies, a leading e-bicyle manufacturer based in Simi Valley, California and part of the international Accell Group (ACCEL.AS). “We’re trying to change a paradigm.” There are reasons to believe that the e-bicycle industry may be able to do just that.

Before explaining why, let’s make clear what we mean by an electric bicycle. These are not mopeds or motorcycles, but bicycles that can be pedaled with or without an assist from an electric motor. They’re sometimes called “pedelecs” or “pedal assist” bicycles because in Europe the boost from the motor only kicks in if you pedal; in the U.S., most e-bicycles also come equipped with a throttle to turn on the motor without any pedaling required. Riding an electric bike feels a bit like riding a conventional bike with a brisk wind at your back; the motor helps you go faster and climb hills, but it’s not the primary source of propulsion. Unlike mopeds or electric scooters, e-bicycles are typically permitted on bike paths, and they can’t travel faster than 20 mph.

Like electric cars, electric bicycles are manufactured by a mix of startup companies and established players, including Schwinn (part of Dorel Industries (DIIBF.PK), Trek (private), and Giant (9921.TW). Industry executives cite several reasons why e-bicycle sales are poised to take off in the U.S. Most important is the fact that more Americans than ever already bike to work, and that cities and towns are building infrastructure to accommodate them. According to the League of American Bicyclists, bike commuting grew by 47 percent nationally between 2000 and 2011, and it grew by 80 percent in communities designated as “bicycle friendly” by the league. Cities including New York, Chicago, Washington, and Los Angeles are building dedicated bike lanes, like those found in northern Europe, to make commuting safer and easier.

“It’s happening in every major city, and a lot of secondary cities around the country, and it’s causing people to think differently about getting around on two wheels,” says Pizzi. “If you don’t have safe infrastructure, people don’t feel as if biking is safe and secure.”

Electric bikes make commutes more inviting by easing worries about hills, headwinds, and fatigue. “They increase the distance that people can ride comfortably,” says Evelo’s Mordkovich. Commuters on e-bicycles are also less likely to arrive at the office dripping with sweat. “It seems like a small detail,” Mordkovich says, “but it’s a big deal to a lot of people.”

Chinese Buddhist monk riding an electric bike. Photo by J.G. (Flickr user “clip works“)

Baby boomers are an obvious market for electric bicycles. “We’re seeing an aging population, and a growing number of people getting back into cycling,” says Bill Moore, an Internet publisher who recently launched ePEDALER, an electric-assist bicycle retailer. Urbanization will be another driver of electric bike sales, Moore said, as will the obesity crisis, rising health care costs, and the desires of employers to encourage their workers to become more active.

Like electric cars, electric bikes are pricey. A basic e-bike can be had for as little as $499 on Amazon, but sturdy, well-designed models with better-quality batteries cost between $2,000 and $3,500. (Conventional bikes sell for an average of about $450 in speciality stores and about $100 in retailers like Walmart and Target where most bikes are sold.) Prices could come down as batteries and electric motors become more efficient, and economies of scale come into play. “The technology is getting better, rapidly,” says Dave Hurst of Navigant.

Unlike drivers of electric cars who are plagued by “range anxiety,” electric bike owners don’t have to worry about running out of electricity: They can travel under their own power, assuming they’ve got the energy to pedal a bike that weighs 45 to 60 pounds. Batteries typically deliver 20 to 40 miles of assisted riding, and
they can be recharged in a few hours in ordinary power outlets.

While some companies are emphasizing the practical benefits of electric bikes they’re good for your health, good for the planet and a low-cost way to get from here to there – others focus on fun and style. They are targeting urban buyers in their 20s and 30s, without a lot of money to spend, for whom the allure of owning a car has diminished.

“We want our bike to be a sexy product, one that everyone will want,” says Daniel Del Aguila, a co-founder of Prodeco Technologies, which is about to open a new factory near Fort Lauderdale. By squeezing efficiencies out of its supply chain, Prodeco sells a number of models for $1,000 to $1,500 that, Del Aguila contends, compare favorably to bikes selling for $2,000 or more.

For the premium buyer, there’s the Faraday Porteur, the brainchild of Adam Vollmer, a mechanical engineer from Ideo, the famed design firm. First launched as a Kickstarter project last year, Faraday is now taking pre-orders for the Porteur, which is priced at $3,500. It weighs less than 40 pounds, features a leather saddle and bamboo fenders, and its Web site promises that it is “crazy fun.” Even more expensive is the $4,000 eFlowE3 Nitro from Currie, which was designed by a Swiss firm, Flow AG, and promises “fast, powerful and nimble handling.” And if you’ve really got money to burn, there’s a German e-bicycle called the Blacktrail BT-1 that claims a top speed of 65 mph and retails for $80,000. Think of it as the Tesla of electric bikes.

DISCLOSURE: None.

Marc Gunther is a contributing editor at FORTUNE magazine, a senior writer at Greenbiz.com and a blogger at www.marcgunther.com.

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