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Active Power: An Analyst Catalyst Candidate?

ACPW reported an impressive Q2 which put the finishing touches on a further impressive 1H. The analyst community has taken notice. With changing estimate trend lines is ACPW an Analyst Catalyst candidate? Seeking Alpha readers who follow my writings understand just how lucrative identifying this can be. It looks like analysts are beginning to see a good story and a story in which they are collectively getting more and more confident in when it comes to Active Power (NASDAQ: ACPW ). After the company’s Q2/15 reporting confirmed what is shaping up to be an inflection point for operations analysts have come to modeling Active Power more bullish than prior and, importantly, more bullish in trend than prior. This matters in a big, big way for getting some volume into the name and for getting some valuation multiple expansion. I detailed the Active Power quarter reported in an initiation note in which I concluded the same as apparently what is now becoming a very consensus analyst opinion -Active Power is finally on its way to healthier income statement performances. Still, to see analysts turn estimate trends positive is encouraging and could, with a quarter or two of further execution, turn into the phenomenon I’ve called the Analyst Catalyst. I’ve detailed this before for Seeking Alpha readers in other names near inflection points of several varieties (growth rates, cash flow positive, EBITDA positive, etc.). It’s been a long, long time since Active Power was the recipient of such faith from the markets and that is reflected in its share price. A change would be welcomed by shareholders and is something that shareholders should pay close attention to. Active Power is currently modeled for steady increases to revenue, EBITDA, and fully diluted EPS to end full year 2015. Through 1H/15 the company remains well on pace to hit these marks. These would be higher highs put in for the noted metrics after the company bottomed in each category in full year 2014. Full year 2014 marked Active Power’s third consecutive year of posting lower lows for the line items – something that drove its stock price lower, investor sentiment to all-time lows, and analyst faith to a point of non-existence. Obviously the modeling change to growth in these categories for full year 2015 and for full year 2016 speaks to the turnaround at the company in progress: You can see in the table above that Active Power is expected to achieve the all-important EBITDA breakeven at full year 2015 reporting with the company going on to report its first EBITDA positive year in four years at full year 2016 reporting. That will be a huge milestone for the company and one that I think will open the name up to significant investment from institutions and other asset managers that can’t or choose not to invest in non-EBITDA positive names. This is more common than most understand. Also, it’s excellent to see that Active Power is modeled to reach near breakeven for EPS in full year 2016 reporting. Again though, maybe the best part of all this is that Active Power has now established positive estimate trends across these categories. In beating estimates, Active Power has essentially validated the reporting analysts’ models – which makes them look smart, which they like. As a natural consequence of both, analysts have had to positively revise estimates at each quarter reported based on the previous beat. I believe these positive revisions, which take place early to mid-quarter, help propel volume and upward share price movement between quarterly reporting. This cumulative effect of analysts powering shares higher at early or mid-quarter AND company quarterly reporting powering shares higher works to create a constant cycle of volume and higher pricing. In general I refer to this as the Analyst Catalyst. You can see in the charts below Active Power might be on the brink of such a bullish cycle: (click to enlarge) (click to enlarge) (click to enlarge) (click to enlarge) I believe that we should see a continued Analyst Catalyst take shape at Active Power as the company continues to impress at quarterly reporting. Active Power is showing excellent trend lines for income statement line items and for key metrics reported as a result of its maturing sales team (which the cumulative effect of this is hard to model) and its growing more well-known value prop. Both should make sure that Active Power continues in its turnaround success and in reshaping its total income statement. I’ll provide updates as I see estimates positively or negatively revise. Good luck everybody. Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

The Importance Of Your Time Horizon

I ran across two interesting articles today: Both articles are exercises in understanding the time horizon over which you invest. If you are older, you may not have the time to recover from market shortfalls, so advice to buy dips may sound hollow when you are nearer to drawing on your assets. Thus the idea that volatility, presumably negative, doesn’t hurt unless you sell. Some people don’t have much choice in the matter. They have retired, and they have a lump sum of money that they are managing for long-term income. No more money is going in, money is only going out. What can you do? You have to plan before volatility strikes. My equity only clients had 14% cash before the recent volatility hit. Over the past week I opportunistically brought that down to 10% in names that I would like to own even if the “crisis” deepened. That flexibility was built into my management. (If the market recovers enough, I will rebuild the buffer. Around 1300 on the S&P, I would put all cash to work, and move to the alternative portfolio management strategy where I sell the most marginal ideas one at a time to raise cash and reinvest into the best ideas.) If an older investor would be hurt by a drawdown in the stock market, he needs to invest less in stocks now, even if that means having a lower income on average over the longer-term. With a higher level of bonds in the portfolio, he could more than proportionately draw down on bonds during a crisis, which would rebalance his portfolio. If and when the stock market recovered, for a time, he could draw on has stock positions more than proportionately then. That also would rebalance the portfolio. Again, plans like that need to be made in advance. If you have no plans for defense, you will lose most wars. One more note: often when we talk about time horizon, it sounds like we are talking about a single future point in time. When the time for converting assets to cash is far distant, using a single point may be a decent approximation. When the time for converting assets to cash is near, it must be viewed as a stream of payments, and whatever scenario testing, (quasi) Monte Carlo simulations, and sensitivity analyses are done must reflect that. Many different scenarios may have the same average rate of return, but the ones with early losses and late gains are pure poison to the person trying to manage a lump sum in retirement. The same would apply to an early spike in inflation rates followed by deflation. The time to plan is now for all contingencies, and please realize that this is an art and not a science, so if someone comes to you with glitzy simulation analyses, ask them to run the following scenarios: run every 30-year period back as far as the data goes. If it doesn’t include the Great Depression, it is not realistic enough. Run them forwards, backwards, upside-down forwards, and upside-down backwards. (For the upside-down scenarios normalize the return levels to the right side up levels.) The idea here is to use real volatility levels in the analyses, because reality is almost always more volatile than models using normal distributions. History is meaner, much meaner than models, and will likely be meaner in the future… we just don’t know how it will be meaner. You will then be surprised at how much caution the models will indicate, and hopefully those who can will save more, run safer asset allocations, and plan to withdraw less over time. Reality is a lot more stingy than the models of most financial Dr. Feelgoods out there. One more note: and I know how to model this, but most won’t – in the Great Depression, the returns after 1931 weren’t bad. Trouble is, few were able to take advantage of them because they had already drawn down on their investments. The many bankruptcies meant there was a smaller market available to invest in, so the dollar-weighted returns in the Great Depression were lower than the buy-and-hold returns. They had to be lower, because many people could not hold their investments for the eventual recovery. Part of that was margin loans, part of it was liquidating assets to help tide over unemployment. It would be wonky, but simulation models would have to have an uptick in need for withdrawals at the very time that markets are low. That’s not all that much different than some had to do in the recent financial crisis. Now, who is willing to throw *that* into financial planning models? The simple answer is to be more conservative. Expect less from your investments, and maybe you will get positive surprises. Better that than being negatively surprised when older, when flexibility is limited. Disclosure: None

Clean Energy Fuel – The Turnaround Has Begun

Summary CLNE has shot up 17% in a week after announcing new refueling agreements and the construction of CNG stations for a number of transit agencies. Despite the drop in oil prices, natural gas is still cheaper than diesel to operate truck fleets, which is why CLNE’s gallons delivered has increased and it is improving capacity. CLNE could see a turnaround in natural gas pricing as LNG exports from the U.S. gather steam, and this will have a positive impact on its financial performance. Clean Energy Fuels (NASDAQ: CLNE ) is in turnaround mode. Over the past week, shares of the natural gas fueling company have appreciated over 17%. A key catalyst behind this jump is Clean Energy’s announcement that it will be constructing of compressed natural gas (CNG) stations for Arlington Transit (NYSE: ART ) in Arlington County, Virginia, along with a number of other transit agencies and new contracts. In addition, Clean Energy has won more contracts in the transit segment, as I will discuss later in the article. This spike has come as a relief for investors, as Clean Energy has struggled so far this year due to weak natural gas prices. In fact, in the second quarter reported earlier this month, Clean Energy had missed Wall Street’s estimates on both earnings and revenue as its revenue dropped 11.5% year-over-year and losses widened. But, will Clean Energy be able to sustain this newly-found momentum going forward? Let’s find out. Advantage of natural gas over diesel is a catalyst The decline in natural gas prices over the past year has created pressure on Clean Energy’s financial performance. In addition, the drop in oil prices has reduced incentives for fleet owners to switch to natural gas. As a result, Clean Energy’s top and bottom lines have taken a hit. However, we should not forget that natural gas is still a cheaper alternative than diesel. This is shown in the following chart: (click to enlarge) Source: Clean Energy This is the reason why Clean Energy is encouraged to continue building its fueling network in the U.S. despite the drop in natural gas prices, as it is still cheaper than diesel. As such, in the last two quarters, Clean Energy’s NG Advantage unit has reported 10 million gallons of volume growth. Encouraged by end market demand, the company has elected to expand its station in Milton, Vermont, to add 30% more contracted capacity. In fact, this is the second significant upgrade of that station in the past year to meet increasing demand for contracted volumes. In addition, the company has signed a number of new contracts that will allow it to sustain volume growth. For instance, Clean Energy has entered into a bulk fuel sales agreement with PG&E, under which it will supply 1.5 million gallons of LNG. In light of such agreements, Clean Energy has opened 15 truck-friendly stations in 11 states in the first half of the year. Going forward, it will open another 10 stations by the end of this year, extending its network to a total of 208 truck-friendly stations across 31 states. This clearly indicates the confidence that Clean Energy has in its business, as the company believes that the price advantage of natural gas over diesel will act as a tailwind in the long run. Moreover, according to CEO Andrew Littlefair, “Despite lower oil prices, Clean Energy continues to add fueling partnerships across all our transportation markets. No matter if they are with a school district, municipality or trucking company, managers of large fleets are looking for a cleaner fuel that reliably costs less and does not have volatile price swings. Natural gas continues to meet their needs.” Improving natural gas market dynamics could be a tailwind Going forward, Clean Energy Fuels could also benefit from an expected improvement in natural gas prices. A key role in the resurgence of natural gas prices in the U.S. will be driven by LNG exports to areas such as Europe. Recently, Cheniere Energy (NYSEMKT: LNG ) announced its plan of supplying LNG to central and southeastern Europe by bringing a floating regasification tunnel to Croatia. Now, Europe is a key market for LNG exports as the EIA believes that imports of LNG into the continent will double in the next five years. This will act as a catalyst for natural gas prices in the U.S. due to a drop in inventory levels. Additionally, the initiation of LNG exports from the U.S. on a big scale will help producers benefit from higher prices abroad , as “gas sells at for $7 in Europe, and over $10 in North-East Asia, four times more expensive.” Hence, as the oversupply of natural gas in the U.S. comes down and demand increases due to switching from coal to gas-fired power plants, prices will improve. In fact, over the long run, the EIA sees natural gas prices rising at an impressive clip as shown below: (click to enlarge) Conclusion Hence, the probability that Clean Energy Fuels will be able to sustain its momentum in the long run appears to be strong. Natural gas enjoys an advantage over diesel in terms of cost and emissions, which is why Clean Energy is seeing an increase in demand for the fuel. As such, investors should consider staying invested in Clean Energy Fuels as it can continue delivering upside in the long run. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.