This morning, HYGS announced that it has been awarded a contract by Concurrent Technology Corporation to supply 20 Fuel Cell Power Packs for integration into Crown lift trucks, replacing lead acid batteries. The contract is another validation that HYGS is becoming better and better positioned to lead in the hydrogen fuel cell market as it continues to emerge. With the stock’s average daily volume increasing from about 300,000 per day to well over 3 million per day, and the surge in price, we don’t think we are alone in our estimates that HYGS has got a lot of room to grow.

Our 2008 target for the stock is $2.34 based on an assumed 3.77 P/S multiple, on revenue of about $56 million (about 50% Y/Y growth). The $2.34 price is about 41% upside from yesterday’s close, and 221% up from our May 14 recommendation.

Dislcosure Note: SCPEditor is LONG HYGS.

Important Disclosure:

This information is intended to assist investors.  The information does not constitute investment advice or an offer to invest or to provide management services and is subject to correction, completion and amendment without notice.  Any such offer, if made, will only be made by means of a confidential prospectus or offering memorandum or management agreement.  It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future results or expectations.  As with all investments, there are associated risks and you could lose money investing.  Prior to making any investment, a prospective investor should consult with its own investment, accounting, legal and tax advisers to evaluate independently the risks, consequences and suitability of that investment

Here is a recap from our July 9 analysis:

July 9, 2008 – Ultralife Batteries (Nasdaq:ULBI) reported this morning that it is raising its Q2 revenue guidance from $75 million to $88 million, an increase of 17% due to strong shipments and accelerated deliveries of its products. First Call’s estimate is $66.43 million, so it looks like ULBI is going to blow away the numbers. We have adjusted our model, and moving our FY target for the company up from $250 million to $260 million. At a 1.25x P/S on forecasted revenue of $260 million, this would put our price target at $18.11, a 67% increase from yesterday’s close at $10.67. Our forecasted earnings for the company are $12.8 million, which should result in about $0.71 per share earnings. At a 25x P/E on forecasted earnings, our price target would be $17.78, or about 66% up from yesterday’s closing price.

As an aside, we think the company is going to blow away our $260 million number, because in order to arrive at that, after adjusting for the company’s revised guidance this morning, we had to tame down Q3 and Q4 sequential growth to about 7% to 8%, which would be a radically slower clip than the 34% growth from Q4, 2008 to Q1, 2008, and then the 77% growth we now expect from Q1, 2008 to Q2, 2008’s numbers.

The company’s products and services include batteries, charging systems, standby power systems, communications accessories, communications and electronic systems, design, installation and maintenance. Customers include GM, Verizon, Comcast, Energizer, General Dynamics, L3, Harris and Raytheon. We think the business is phenomenally well positioned across government and defense and commercial markets, and a broad set of applications that it addresses.

Key drivers for the business include:

· Communications & electronic systems – becoming more integrated and there are more improvements in component architectureSo the business is executing and the secular trends bode well for the stock. At the current $10.67 price level, we think the risk-reward on the stock is compelling.

The markets are likely to sell of this morning, so there could be an opportunity to accumulate more ULBI on broader market weakness, and we think that strategy makes sense.

Disclosure Note: SCPEditor has no position in ULBI.

• Increase in Q1 revenue 85% to $32.3 million from $17.5 million Y/Y

• Increase in Q1 net income 79.1% to $2.9 million, or $0.09 per share from $1.6 million Y/Y

• Cash on hand of about $94 million up from $36 million at the end of 2007 and no debt

• Backlog of $700 million, up from $398.2 million at year end 2007
• Expects to complete wind facility in June and will be producing turbines in Q3

• Affirmed earnings guidance for 2008 of $35 to $45 million, or about $1.04 to $1.34 per share.

Assuming about 33 million shares issued and outstanding, the stock is trading at a market cap of about $765 million, or about 21x the low-end of its income guidance for 2008 (17x the high end). It is trading at 1.09x backlog, 8x cash on hand, which in our mind, are demonstrative of the fact that the stock price does not fully reflect the growth in the business. Our target trading range for the stock remains at $32 to $42, a 39% to 82% increase from current levels.

Disclosure Note: SCPEditor is LONG APWR

Here is our rationale:

The markets have been on a tear since March. The DJIA is up 3,560, or 55% while the Nasdaq is up 899, or 71%. While the 100-day simple moving averages are 8.9% and 9.7% below current trading levels.

The markets have been pricing in widening expectations that the economy is stabilizing based on a steady string of ‘less bad’ news. But in our opinion, the news is still bad:

• 9.8% unemployment – in order for the economy to get mark-to-market its job situation to pre-recessionary levels, it would have to add 500,000 jobs per month for the next 16 months. But businesses aren’t investing back into the workforce yet, due to…

• Still tight credit markets – commercial banks are not lending. We looked this morning at commercial loans and the pace of declines in commercial loans is actually accelerating – down 1.1% in July, down 2.3% in August and down 2.5% in September.

• Credit card defaults are still at historic highs, delinquencies are up and home foreclosures still on the rise -RealtyTrac reported this morning that the number of homes in foreclosure rose more than 5% from summer to fall, impacting almost 938,000 properties in the July-September quarter. Foreclosure-related filings are now on pace to hit about 3.5 million this year, up from 2.3 million last year. And with unemployment at 9.8% and expected to rise well into the 10% range into 2010, the outlook for homeowners remains poor.

• Now, the dollar is sliding amidst unchecked debt spending and monetary expansion – the implication here is that erosion in the dollar will usher in inflation.

Against this backdrop, we can’t be bullish. The consumer is the fundamental engine for our economy. If the consumer is in disrepair, the economy will not expand, period. But valuations in stocks are reflecting just the opposite. Valuations relative to forward earnings on the S&P;500 have not been this high in years!

We don’t see where the corporate performance is going to come from given the current state of the consumer. In a ‘healthy’ economy, consumers are expected to spend 97% of their disposable income to support 70% of GDP, while consumer credit has tipped to about 22% of GDP.

Add to the equation the fact that consumers are on the hook for $7.5 trillion of the close to $12 trillion national debt and consumer debt represents about 69% of GDP!

The fundamentals are just not there for growth. But this is exactly the opposite of what the markets have been telling us for the past few months.

As the saying goes, the markets can stay irrational longer than you can stay solvent. Regardless, we think a prudent strategy at this point is to hedge against downside risk and the QIDs and DOGs are, in our opinion, a good hedge.

Important Disclosure: This information is intended to assist investors.  The information does not constitute investment advice or an offer to invest or to provide management services and is subject to correction, completion and amendment without notice.  Any such offer, if made, will only be made by means of a confidential prospectus or offering memorandum or management agreement.  It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future results or expectations.  As with all investments, there are associated risks and you could lose money investing.  Prior to making any investment, a prospective investor should consult with its own investment, accounting, legal and tax advisers to evaluate independently the risks, consequences and suitability of that investment.

Now, Yahoo is about to really feel the pressure. We expect the stock to sell off, given that it really doesn’t have an immediate plan and the uncertainty about the company’s future direction is now going to mount. Remember that the stock is up about 70% since January when all of this talk of a Microsoft acquisition kicked into full gear.

So we expect to see Yahoo retrace. This will only put more pressure on the management team at Yahoo as its shareholders will undoubtedly make their opinions known on the matter, and second guessing will be rampant.

The alternatives to partner with someone else really don’t look that good either. Yahoo has had conversations with Google, but there would be obvious regulatory issues with a deal here. AOL is just a bad idea, and MySpace is probably way overvalued in light of the fact that it hasn’t figured out how to really turn a buck.

The irony here is that at the end of the day, pressure of a spiraling stock could send Yahoo back to the table with Microsoft, which might not be as generous in a second bid. In any case, we wouldn’t be owners of Yahoo’s stock right now and think it is probably a good short at current levels.

On the other side, Microsoft isn’t exactly looking too good either, given the fact that it had expressed the importance of this deal to compete with Google.

It expects to book the $48M in the next 12 months, so we are looking at a business with a trailing 12-month revenue run rate of less than $2M that is looking forward to a run rate over the next 12-months approaching $40-$50M. This kind of growth should drive a valaution of at least 4-5x EBITDA, in our opinion, which, would equate to an implied $40M to $50M valuation assuming our projected EBITDA on the recently announced $48M contract. This would, in turn, translate into a stock price target of $1.36+ assuming the same amount of shares outstanding today.

For full disclosure - the SCP Editor, and author of this commentary, is managing partner of Aspire Clean Tech Communications, which is an advisor to Dais. If you have any questions about Dais, please call us at 760-798-4938.

Important Disclosure:

This information is intended to assist investors.  The information does not constitute investment advice or an offer to invest or to provide management services and is subject to correction, completion and amendment without notice.  Any such offer, if made, will only be made by means of a confidential prospectus or offering memorandum or management agreement.  It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future results or expectations.  As with all investments, there are associated risks and you could lose money investing.  Prior to making any investment, a prospective investor should consult with its own investment, accounting, legal and tax advisers to evaluate independently the risks, consequences and suitability of that investment

So it shouldn’t be surprising to see energy prices increasing in real terms and on an inflation adjusted basis. Against this backdrop, energy efficiency is an increasingly important topic and one of the companies whose technologies are well positioned to address the demand for grid efficiency is Echelon Corp (Nasdaq:ELON).

ELON’s technology enable companies to save on energy consumption, and operate more efficiently. The company cites examples where its management and control systems have reduced Oslo Norway’s energy lighting system by 62 percent and how its LON platform enables utilities to ensure that when the electricity grid is nearing capacity, there are megawatts of energy available. One of the more sexy announcement’s ELON has released in the last year was that McDonald’s had selected its technology to manage and power its “smart kitchens” of the future. We are still quite a ways off from seeing ELON in every McDonald’s but the opportunity it immense (the stock rallied from $18 to $30 on the heels of the announcement).

We have been writing about the company for more than a year now, and have watched the stock run from $11 to $32 and back to $11 again. Over that period of time, the company has grown its revenue from a $60 million run-rate to the current $170 million forecasted for FY 2008.

So Why Has the Stock Sold Off Lately?

A couple reasons: 

1) We think the markets aren’t recognizing that the most recent numbers are a bit deceptive. Namely, just taking a cursory gloss at the most recently reported Q, it looks like sales are on the decline on a Y/Y basis with revenue posted in the most recent Q1 at $35.6 million compared to $39.3 million for the same period last year. But it is important to keep in mind that the Q1 2007 number is deceptive because it is inflated by $14.4 million from recognition of deferred revenue prior to 2007. So the real sales number for the quarter was actually $10.6 million, which would put the Q1 2008 results more accurately at a 42% sales growth Y/Y.

2) The stock is getting discounted against some uncertainty in its Networked Energy Services (“NES”) business where management has indicated that up to $5 million expected to book in Q2 might get pushed back into the second half of the year.

3) Sadly, we think there is probably some apprehension about the company’s near term ability to cope with the tragic loss of Bea Yormark, its CEO.
So it appears at this point the Street is taking a “wait and see” approach to the stock. These are the times, in our opinion, where there is the greatest opportunity to pick up stocks at a discount to performance and even more so when you consider the “blue sky” in the deal.

The stock is currently trading at about $12.00, or 3.56x 2007 revenue of $137.5 million. The company is forecasting revenue for 2008 of $178 million. Discounting forward P/S multiples by 30%, we project that, against the current market valuation, the stock will likely trade in a range of $10.78 to $15.53. So at current levels, we think the downside on the stock is about 10&#xwh;ile the uspside is closer to 30%.

Disclosure Note: SCPEditor is Long Echelon.

Today, those puts are up more than 59%. Our assessment is that if we leave the put positions alone, they will likely expire worthless in September, which would yield a 100% return. On the other hand, we expect the broader markets to remain volatile in the next several months, which could lead to a retracement in FTEK’s stock, and another opportunity to sell puts (see our similar strategy, which has worked out well on First Solar). In addition, in this market, a 59% gain in a little more than a month seems to be more than adequate.

Our advice would be to close at least half, if not all, of the put position, locking in that 59% gain.

Important Disclosure:

This information is intended to assist investors.  The information does not constitute investment advice or an offer to invest or to provide management services and is subject to correction, completion and amendment without notice.  Any such offer, if made, will only be made by means of a confidential prospectus or offering memorandum or management agreement.  It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future results or expectations.  As with all investments, there are associated risks and you could lose money investing.  Prior to making any investment, a prospective investor should consult with its own investment, accounting, legal and tax advisers to evaluate independently the risks, consequences and suitability of that investment

Disclosure Note: SCPEditor is long APWR.