Westport Innovations (WPRT, Financial) reported mixed numbers in the first quarter with year-over-year decline in revenue, while losses narrowed considerably and topped the street expectations. The bottom line is better on a sequential basis as well, even though it lagged behind the analysts’ consensus by a significant margin in the fourth quarter. However, in spite of these positives we cannot neglect that Westport has been struggling to report positive earnings in the past, which is quite disappointing. Let’s see how the company intends to bring its business back on track.
Trying to overcome a weak performance
Its revenue for the quarter declined 30% from a year ago period to $28 million, but on the bright side its losses declined to 27 cents a share compared to a loss of 38 cents in the same period last year. Apart from reduction in operating expenses, its bottom line improved on account of a whopping 1,675% increase in its net income from joint ventures. In fact its recent initiatives have been focused on improving costs, which will prove beneficial in the long run.
In this direction, the company is planning to reduce its non-core assets and expects to churn out more than $50 million through this. It would greatly enhance its cash liquidity, which will come in handy especially considering its total debt of $70.96 million. Additionally, the company burned around $24 million every quarter throughout 2014 and expects to continue the same in the coming months. As a result of these moves Westport expects to report sustainable operating cash flow from its operations by mid of 2016.
But cost reductions alone, will not be sufficient to take its business forward and here is where its strong asset portfolio comes into play. The company is heavily investing on the HPDI 2.0 program, which is expected to run into 2016. Although the current oil price is making it difficult for gaseous engine makers but anticipating that the prices will improve in the future, this investment seems to be a good move.
On the light duty vehicle market, the company will offer a broad line of Ford products, where gaseous prep engines are available. Along with this, it will also launch the Volvo bi-fuel vehicle by 2016. Interestingly, the V60 and V70 bi-fuel vehicle is seeing good pre-market orderings even before the customers have been able to test drive it, which is quite encouraging.
Conclusion
All these efforts will prove beneficial for its long-term growth, especially its new product launches and cost-cutting initiatives. However, its valuations at current levels look quite ugly. It does not have any signs of trailing or forward P/E, reflecting that the company still has to break even. Further, its P/S multiple of 2.93 is too expensive compared to the industry average of 1.56, which reflects that the stock is a bit overvalued at current prices. Therefore, in the light of these facts it seems prudent for investors to watch this stock from sidelines and wait for a better entry point.
