Echelon (Nasdaq:ELON) Reports Lackluster Results for Q3

Nov 06, 2008
Author: SCP Editor

November 6, 2008 – Echelon (Nasdaq:ELON) reported financial results this morning, and provided guidance for the fourth quarter in a range of $36 to $38 million which have negative implications on our revenue expectations for the year. Consequently we are reducing our revenue target from $168 million to $131.5 million, and our adjusted target trading range for the stock is in the current $7 to $8 range based on a forward price-to-sales multiple of 2.5x.  

We remain bullish on the company’s business. It continues to gain traction in the European markets through its VAR channel, yesterday having announced a potential 90,000 home smart metering project in France. And last month it announced another European utility has selected its advanced metering infrastructure in Denmark, which will add 50,000 to 200,000 more homes in a contract worth $5 to $20 million through 2011.  

And we expect to see its LonWorks platform continues to gain traction. More efficient energy management and reduced consumption are the most basis ways to deal with tight global energy demand. Echelon’s technology enables facility managers to monitor and control building subsystems locally or remotely creating more efficient consumption. Last year, when Echelon announced it had been selected to integrate its LonWorks technology into McDonald’s to create the “kitchen of the future” the stock soared from $18 to $30. We look forward to hearing about the progress here, as well as on other fronts.  

But the bottom line is that it looks like year-over-year revenue performance is going to decline, and the company is still a number of quarters away from reaching profitability. It has about $80 million in cash and cash equivalents as of the most recent quarter, so we are comfortable that it won’t have to raise capital in the near-term, but the pressure is on for the business to get back on its growth track. Until then, our expectations for stock performance are measured.  

Important Disclosure: SCPEditor is LONG ELON. The information and trades provided here and in the comments are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance.   


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