Alerts

Stock Alerts

April 24, 2008 - In a market where energy prices are soaring, more efficiency in energy management is critical to controlling costs. Echelon’s technology enables businesses to monitor and save energy thereby reducing costs. The Company’s LonWorks technology has been validated and widely adopted through high profile OEM customers including EnerNOC, Fujitsu, Honeywell, Johnson Controls, NTT Data, Samsung and Siemens.  Echelon also develops and markets an advanced metering infrastructure system called Networked Energy Services (NES) that enables utilities to reduce operating costs and better promote energy efficiency through better utilization of assets, improved grid quality and reliability and the ability to control loads and reduce peak demand.

It is also gaining traction with through sales of its iLON products that provide a platform for monitoring and reducing energy consumption and maintenance costs. Last year, Echelon announced a deal with McDonalds where it is encouraging its manufacturers to integrate LonWorks technology into new equipment to establish its “kitchen of the future.” The stock rallied to the low $30 range on the news.

Now, with the broader markets selling off in the face of a recessionary environment, Echelon’s stock has pulled all the way back to the $13 level. We think it is really compelling here at a price to sales ratio (ttm) of 3.89. Analyst expectations are for Echelon to report revenue of $177 million for 2008, which would put our target for the stock at about $17,  representing about 30% to the upside from here.  

Growth Drivers 

·         The worldwide electric metering industry is transitioning from stand alone meters to advanced metering infrastructure, or “smart grid” systems;
·         Building automation is perceived as a major opportunity for business to lower system installed costs, reduce ongoing life-cycle costs and reduce energy consumption;
·         An increasingly important and critical component of grid management are demand response systems which help customers manage energy use and control energy costs during peak electricity periods;
·         Consumer demand for “green products” in the home automation market to better manage energy consumption and reduce costs;  

Key Considerations 

·         To date, Echelon has shipped more than 1 million NES meters to customers around the world
·         Year-over-year revenue growth of $80 million to $137 million, a 140% increaes and increase in gross profit of $16 million, or 51%.
·         NES revenues gained considerable traction in 2007, ramping from $791 thousand in 2006 to more than $70 million.