Having posted strong results in the fourth quarter and concluded the fiscal year on a positive note, Capstone Turbine (NASDAQ:CPST) is looking well-placed for growth and margin expansion. The company's strategies clearly indicate its intent to continue improving its position in the market. Capstone is aligning its operations toward growth, and it believes that the internal improvement made in the past years will help it achieve its goals to make inroads in a promising new market.
Focusing on efficiency
The company is continually making moves to bring down costs. Simultaneously, Capstone is efficiently managing factors of production such as labor, and also keeping manufacturing costs in line with estimates to move toward better profitability. Also, Capstone’s backlogs are more than last year’s same quarter. The cash balance at the year-end was $28 million. But, the company is expecting to add another $30 million on the back of new net proceeds. This is exciting news for investors, because such a move can put it in a good position in terms of financial flexibility.
- Warning! GuruFocus has detected 4 Warning Signs with CPST. Click here to check it out.
- CPST 15-Year Financial Data
- The intrinsic value of CPST
- Peter Lynch Chart of CPST
The oil and gas segment is among the most profitable segments of Capstone. On the other hand, natural gas is driving handsome growth opportunities, and is growing at a good pace. Seeing the robust growth in the natural gas segment, Capstone is confident of a better performance in the future. Moreover, research has revealed that global shale gas is going improve in the coming years. Capstone is confident of dealing with every aspect of this growing gas market, including exploration, production, compression, and transmission.
End-market growth is positive
On the international front, Capstone is seeing solid performances from the European, Asian, and African markets. The growth is supported by the fact that it has gained $15.2 million from the European market, $6.1 million from the African market, and $2.3 million from the Asian market. The total mix was 51% North America, 31% Europe, 8% Asia, 4% Australia, and 6% other regions.
The main reason behind the good growth in the European market is an increase in sales in Russian natural gas and oil industry. However, Capstone’s Russian wholesaler in the area, BPC Energy sold 2 megawatts of projects in Ukraine. So, general deals have not been influenced by the political distress. Also, regions across Europe such as Austria, Slovenia, and Switzerland are seeing strength, along with Germany, Italy, and Poland.
Capstone is seeing an increase in shipments for micro turbine, which is helping it expand its footprint into a number of markets where rapidly rising power needs require added distributed energy resources. Capstone is also seeing good growth opportunities from Mexico with strong orders from that region. The company is making efforts to move into energy efficiency, renewable energy, natural resources markets in South America and parts of Africa, which are expected to produce good synergies in the future.
Moving on to specific products, the company is expecting strong sales of its C65 product. However, Capstone also saw some weakness in sales of C30, C100, and C200 micro turbines. But, a good product mix of the C1000 series offset the negative sales of these products.
Moreover, the company is also focusing on innovation. Capstone, in partnership with Oak Ridge National Laboratory, has built a new C65 recuperator with advanced AFA steel material. This new alloy could be used for several high temperature applications within micro turbine products at a significantly reduced cost. This can be a positive for Capstone if it gains enough traction in this market. In addition, Capstone is focusing on product innovation to make hardware and software more efficient, so that it can work smoothly in the grid.
Finally, the company is also seeing handsome growth opportunities in the transportation market, with HEV buses and trucks as well as dual repower for marine applications. Further, in the marine market, Capstone has expanded its product offerings which are fuel efficient. With such impressive moves, Capstone looks like a solid bet for the long run.