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How Westport Innovations Can Continue Improving

October 27, 2014 | About:

Westport Innovations (NASDAQ:WPRT) produced remarkable results for the second quarter as the company shifted its focus. It is counting on a strong portfolio with natural gas products in its offerings such as the Westport WiNG, Westport iCE PACK for the LNG tank system and power system for Ford vehicles. This led its on-road system revenue to shoot up nearly 57% to $11.6 million during the quarter from $7.4 million in a year ago period.

In addition, Westport delivered impressive $1.00 million positive adjusted EBITDA from its operation during the second quarter, meeting its goal of achieving the positive adjusted EBITDA for fiscal 2014.It had incurred a loss of $1.6 million in EBITDA from its operation in the first quarter of 2014.

Westport’s revenue excluding its joint venture revenue for the second quarter came in to $40.0 million, a rise of almost 15% as against $34.9 million in the corresponding period last year. Also the company has improved its net loss during the second quarter nearly 28.15% to $26.8 million or earnings of $0.42 per share from net loss of $37.3 million or earnings of $0.67 per share last year excluding the foreign exchange gain or loss.

Expecting better times

Westport is all set to gain from the remarkable opportunities it has in the natural gas vehicles (NGV) markets. According to the Natural Gas Coalition, there are 130,000 natural gas vehicles in the United States and more than 2.5 million in the world. And the market is expected to grow at a healthy pace in the future as many automobile companies have started producing more natural gas vehicles.

Westport has built successful relationships with many auto giants such as Ford (NYSE:F), Volvo, Fiat (FIATY) and Tata that should drive its revenue growth going forward. Moreover, the company has developed strong products portfolio that is expected to deliver revenue growth of around 30% this year. Besides its new products are gaining traction in the market such as WP580 engine management system, the iCEPACK LNG systems and LNG traders in the rail business.

Moreover, the company has during the second quarter introduced various new products such as Weichai Westport WP12 HPI system, new models of Ford and Volvo vehicles, and finally also launched LNG tenders for its oil businesses across the world. These products will drive growth for the company in the coming years.

Westport during the second quarter has delivered the second and the third LNG tender to the Canadian National Railroads and had its stationary testing for its first tender at EMD. Westport sees tremendous growth opportunities in marine applications as well with utmost focus on inland waterways, offshore serve vehicles – ferries – and LNG bunkering segments that will drive its margins in the coming years.

On the operational front the company is really excited with its final phase of the development of Volvo HPDI program which running at a healthy speed. Westport expects this development to be completed by the end of this fiscal year. Also the company is now involved in the developing the comprehensive manufacturing process and equipment plans for its HPDI injector production line that will again support its product portfolio. In addition the new generation HPDI injector for Delphi is in progress and soon will be completed that will certainly drive its growth in the coming years.

More applications

Westport is also planning to invest strategically in the CNG and LNG application over a couple of years to strengthen its fuel supply system and with significant allocation of its investment will also be directed towards its broad portfolio of vehicle components such as spark-ignited dual fuel and HPDI engine systems for applications from forklifts to locomotives. Also, the company strongly believes that it will hold a unique position by the completion of this investment that will virtually provide support to its OEMs across the world with the natural gas vehicle program.

Apart from these initiatives the company is also working on two of its goals this fiscal. First, it is focused on the effective execution of its investment program. Westport has been consistently investing in the other equipment manufacturing service providers with top most concern in the development of the global trucking, automotive products, and off-road like rail and large mine trucks. It has so far invested nearly $239 million since 2012. Besides, the company is also spending a handsome amount in advance engineering and capital expenditure program. Also the management said that these strategic spending will take three to five year deployment cycle to actually convert sales for the company.

Meanwhile, Westport is also concentrating on developing strategic relationship with key OEMs with the contractual commitments in order to get hold of new customers, while eradicating barriers confronting the rapid adoption of natural gas as a transportation fuel around the world, which is its second goal this fiscal.

From the cost optimizing perspective, Westport has initiated supplying its own components to the number of products it has at its folds that will again create new growth opportunity for the company to deliver a complete solutions to its customer worldwide, thus enlarging its product portfolio that will help the company to get profited immensely eventually.

For example its WiNG power system of Ford now will use the components that are being produced by the applied technology by the Italian operations similarly its iCE PACK LNG tank system will use the regulator intended basically for iCE PACK. Westport has also enlarged its vehicle lineup now with the 2015 model year which is integrated with the bi-fuel CNG for the Ford Transit Connect. The company has during the second quarter launched the bi-fuel CNG version of the Ford 150 featuring the Westport WiNG Power System.

Conclusion

All-in-all the Westport looks pretty solid with its joint venture with Cummins (NYSE: CMI) and Weichai Westport along with its partnership with Tata are driving its growth and should lead to even better operational and financial results going forward. Analysts have estimated CAGR of 30.00% which is higher than average industry CAGR of 24.21% for the next five years signifies tremendous growth prospects in the future. The stock is a good pick for the long term.


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