Capstone Turbine Corp. (NASDAQ: CPST)

Capstone Turbine Corp. (CPST) develops, manufactures, markets and services microturbine technology solutions for use in stationary distributed power generation applications, including cogeneration (combined heat and power (CHP), integrated combined heat and power (ICHP), and combined cooling, heat and power (CCHP), resource recovery and secure power.

The Company’s microturbines can be used as battery charging generators for hybrid electric vehicle applications. CPST offers microturbines from 30 kilowatts up to one megawatt in electric power output, designed for commercial, industrial, and utility users. Its 30 kilowatt (C30) microturbine can produce enough electricity to power a small convenience store. The 60 and 65 kilowatt (C60 Series) microturbine can produce heat to provide hot water to a 100 room hotel while also providing about one-third of its electrical requirements. In addition, it remanufactures microturbine engines; and provides after-market parts and services, scheduled and unscheduled maintenance, and factory and on-site training services. The Company’s microturbines are fueled by various sources, including natural gas, propane, sour gas, landfill or digester gas, kerosene, diesel and biodiesel. It sells its products primarily through distributors, original equipment manufacturers and end users in North America, Asia, Europe and the Russian Federation.

Capstone Turbine Corp. was founded in 1988 and is based in Chatsworth, California.

Source: Reuters.com, SEC Filings.

Financial Summary

Revenue for the second quarter of fiscal 2010 was $15.5 million, an increase of 18% from the second quarter of fiscal 2009. CPST shipped 138 units in the second quarter of fiscal 2010, compared to 172 units in the same period last year. Average revenue per unit increased for the second quarter of fiscal 2010 to $91,000 compared to $58,000 per unit for the second quarter of fiscal 2009 because of the introduction of the higher priced C200 and C1000 Series systems.

CPST’s backlog as of September 30, 2009, was $59.3 million, an increase of 18% from September 30, 2008, and an increase of $0.2 million from June 30, 2009.

The reported gross loss for the second quarter of fiscal 2010 was $3.0 million, or 19% of revenue, compared to $0.3 million, or 2% of revenue, for the second quarter of fiscal 2009. The increase in gross loss reflects (1) decreased sales of C60 Series systems, resulting in a lower margin product mix, (2) increased manufacturing costs because of the recent introduction of the C200 and C1000 Series systems for which the manufacturing cost have not yet been reduced to their target cost and (3) higher warranty expense due to an increase in the per unit warranty expense for the C200 and C1000 Series systems.

Research and development expenses were $2.3 million for the second quarter of fiscal 2010, an increase of $0.3 million, or 15%, from the second quarter of Fiscal 2009. R&D expenses are reported net of benefits from cost-sharing programs. There were no such benefits for the second quarter of fiscal 2010 because the UTC Power Corp. cost-sharing program concluded in the first quarter of fiscal 2010 and there were no other cost-sharing programs. For the second quarter of fiscal 2009, $2.3 million of such benefits were recorded. The overall increase in R&D expenses was a result of the reduced funding benefits for the UTC Power Corp. cost-sharing program, offset by decreased spending for consulting fees, supply, salary and facilities expenses.

Selling, general and administrative expenses were $6.8 million for the second quarter of fiscal 2010, a decrease of $0.9 million, or 12%, from the second quarter of fiscal 2009. The net decrease in SG&A expenses was comprised of a decrease in salary, consulting and travel expenses offset by an increase in professional services expense that includes accounting, legal, financial advisory services and insurance expense.

CPST’s net loss was $31.9 million, or $0.17 per share, for the second quarter of fiscal 2010, an increase of $22.0 million from the $9.9 million loss, or $0.06 per share, reported for the second quarter of Fiscal 2009. The increase in net loss was primarily the result of the adoption of Accounting Standards Codification 815 “Derivatives and Hedging,” which affects the Company’s accounting for warrants with certain anti-dilution provisions. The Company recorded a non-cash charge of $19.6 million to change in fair value of warrant liability during the second quarter of fiscal 2010. CPST’s net loss for the second quarter before considering the non-cash warrant liability charge would have been $12.3 million (calculated by subtracting the $19.6 million warrant liability expense from the $31.9 million reported net loss), or $.07 per share (calculated by subtracting a $0.10 per share loss attributable to the warrant liability expense from $0.17 per share reported loss), compared to the $9.9 million, or $.06 per share loss for the second quarter of fiscal 2009, which did not include a warrant liability expense. Capstone’s loss from operations for the second quarter of Fiscal 2010 was $12.1 million, or 20% higher than the $10.1 million loss from operations for the second quarter of fiscal 2009.

Cash and cash equivalents for the second quarter ended of Fiscal 2010 were $24.0 million, an increase of $4.5 million from March 31, 2009. The Company entered into warrant exercise agreements during the second quarter of Fiscal 2010, resulting in gross proceeds to the Company of approximately $6.5 million.

Source: Reuters.com, SEC Filings.

Analyst Consensus

This is the consensus forecast amongst 3 polled investment analysts. Against the Capstone Turbine Corp company.

The 3 analysts offering 12-month price targets for CPST have a median target of 1.50, with a high estimate of 3.00 and a low estimate of 1.35. The median estimate represents a 13.64% increase from the last price of 1.32.

Source: www.ft.com

Source: http://www.reuters.com/finance/stocks/estimates?symbol=CPST.W

Investment Highlights

With China wanting more electricity from renewable sources, CPST has added two distributors in China focused on securing biogas applications in landfills, agriculture and wastewater treatment plants. Golden Gate Industrial, headquartered in Taipei, Taiwan, with offices in Shanghai, China, has 20 years of power-generation experience. Golden Gate is the new CPST distributor covering a territory that includes Mainland China’s coastal provinces.

The Company recently sold a C65 microturbine that will be installed as a demonstration project at the massive Mentougou Landfill outside of Beijing, which a U.S. Environmental Protection Agency report stated could produce 245 standard cubic feet per minute of landfill methane gas. This is the third landfill installation of Capstone microturbines in China or Taiwan. Powel Technologies, headquartered in Nanchang, China, is the second new Chinese distributor. The company will sell, install and service CPST’s turbines and microturbines in four central Chinese provinces. The Chinese government is increasing efforts to develop renewable energy. According to a plan released in 2008 by the National Development and Reform Commission in China, the country wants renewable energy to account for 10% of the nation’s energy-consumption structure, and electricity generated by biological materials to reach an installed capacity of 5.5 million kilowatts by 2010.

CPST yesterday announced that it signed two C1000 Factory Protection Plan (FPP) contracts in Europe for renewable clean energy projects. The FPP contracts are valued at approximately $1.8 million over a 15-year period. The FPP backlog as of May 31, 2009 was approximately $11 million. These latest contracts increase the total FPP backlog to over $17 million as of November 30, 2009, growth of over 60% for the six-month period. Capstone launched the FPP program approximately two years ago to improve the reliability and service of its microturbine solutions. Typical FPP service contracts vary in length from a minimum of one year to a maximum of 15 years with most FPP contracts covering between five and nine years. Customer payments are generally received quarterly in advance over the term of the FPP.

Source: http://www.capstoneturbine.com/index.asp

Technical Analysis

CPST is trading within its Bollinger Bands. This is a normal condition and suggests that the stock is neither overbought nor oversold relative to the recent price action.

The MACD for CPST currently indicates a strong bullish signal for two reasons. First, the MACD is above the signal line, a 9-day moving average. Second, the MACD is above 0, which implies that the underlying moving averages are trending higher.

Comparative Analysis

Source: Thomson Financial

Insider Trading Activity

Source: Yahoo Finance

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