Capstone Turbine (CPST, Financial), a leading clean energy manufacturer of micro turbine energy systems, recently reported not so impressive results for the second quarter. The company did show improvement in the timing of shipments and overall sales. This led Capstone to post a good increase in the gross margin. But, the company posted a softer revenue as compared to last year.
Making efforts to execute a turnaround
To get over this weakness Capstone is making efforts and is focusing on numerous initiatives to improve its profitability. On the back of these efforts, management is confident that the company will regain its lost momentum soon and will advance towards profitability. Let us have a look at Capstone’s underlying business.
Moving to its financials, in the recently reported quarter, Capstone posted revenue of $32.2 million which is lower than $35.3 million which it posted in the same quarter last year. This also fell short of analysts’ estimates of $36.7 million. In addition, the company also posted a quarterly loss of $6.5 million. It posted loss of $0.02 per share in earnings while the consensus were modelling a loss of just $0.01 per share.
Trying to tap more opportunities
Capstone is making advances to find opportunities to get over this weakness and improve. In fact the management claims to succeed on some solid grounds. Though the results were not up to the mark in the recent quarter but the noticeable things was a vast improvement in the sales and timing of shipment. This indicates that the company is getting good sales opportunities. Capstone is already seeing good improvement in the gross margins as well. To further make itself strong in operations, Capstone is making efforts to bring down the manufacturing costs to further improve its margins. This will give bright opportunities to the company to be on track once again.
Moving deeper, Capstone is anticipating that the demand for micro grid and power resiliency is going to improve in the coming days. The company is seeing great opportunities for growth in this area. It will be in a good position to provide additional value to CHP installation. Capstone is also seeing great potential from the European market where it is seeing some positive signs from the markets due to the recovering economy. Also in Russia despite many challenges, the company succeeded posting good numbers. Capstone is further expecting BPC to continue to grow its business not only in oil and gas but also in the manufacturing sector.
International performance
On the international front, Capstone is pleased with the expanding business opportunities it is seeing with its partners in U.K., namely Turner and Cogenco which are developing solid project lines. The company is thinking it this to be key growth driver for them in U.K. Mexico is also turning out to be potential growth venture for Capstone as the President of Mexico has signed a comprehensive energy reform act opening a previously stated owned energy sector to private firms. This reform will allow foreign investments in Mexico’s vast energy resources. Capstone has a great opportunity in Mexico and is expecting to hold a bigger piece of the pie.
Capstone is focused about the future and it is now investing well in the R&D initiatives to further expand its foot prints. In addition, the company also achieved ATEX third party certification of the C200 for offshore oil and gas applications and installed half a million dollar grid simulator and upgraded its lab to commence the European grid interconnect certificate testing later this year. Capstone is also continuing its life cycle testing of the low priced AFA material under current DOE contract which are expected to further strengthen its position in the market.
Conclusion
The company doesn’t have a trailing and a forward P/E as it is still making losses. But the recent results and the strategic moves which it is taking shows positive signs and the company is expecting to improve soon. But its long term prospects look strong as the company’s earnings are expected to grow with a CAGR of 25.00%, which is more than the industry average of 16.75%. So, considering all these facts and statistics, Capstone is a good pick.
