Forget the old adage "A penny saved is a penny earned."
When it comes toinvestments in energy efficiency, the payback can
be 200% or even 400%, according to various studies. That's why
there is a fresh push to step up our pace of energy efficiency
investments, as I discussed in Part One of this two-part series.
The challenge for investors is to find companies that are
squarely focused on theissue . In my first column, I noted that
Johnson Controls (
Ingersoll-Rand (NYSE:IR )
alloffer a variety of efficiency-oriented products and services.
However, these companies aren't really pure plays, as they have
considerable exposure to the auto industry, the defense sector
and other niches that can dilute thegains theywill see from
rising spending on their energy efficiency gear.
Let's take a look at smaller companies that are almost
exclusively dedicated to this opportunity.
1. Ameresco (Nasdaq: AMRC)
Think of this company as a lead contractor. Its team of engineers
andanalysts who help companies identify possible investments that
can help reduce their energy consumption. A key focus is in the
areas of heating, cooling and lighting that can help clients
attain an EnergyStar designation or LEED (Leadership in Energy
and Environmental Design) certification. Ameresco also helps
companies install renewable-energy systems at their facilities.
Back in the past decade, when theeconomy was on firmer ground,
many companies decided to make these money-saving investments,
helping Ameresco'srevenue base grow from under $300 million in
2006 to more than $600 million by 2010. But the slow-growth
economy since then has led to much longersales cycles as the
company tries to convert its pipeline ofsales leads into firm
Equally significant, the U.S. government, a key customer, has
frozen new orders in recentquarters . As a result, sales are
expected to be flat thisyear at around $628 million. That
explains whyshares have lost almost half of their value over the
past two years.
Yet analysts expect double-digit sales growth to return in 2014,
and currentprofit forecasts will likely prove conservative if the
ESIC Act I discussed in Part One becomes law. Insupport of that
brightening outlook,CEO George Sakellaris recently bought nearly
$200,000 worth of companystock at around $7.70 a share.
2. Cree (Nasdaq: CREE)
LED lightbulbs are so appealing -- in bothterms energy
consumption and years of uninterrupted operation -- that their
eventual long-term dominance of the lighting industry appears to
be an almost foregone conclusion. As I noted in a look at Cree in
early 2012, "One industry study, conducted by analysts at
Needham, predicts demand for LED lights will grow 90% a year for
the next five years. But industry sales will only rise 38%
annually as price cuts take a bite out of revenue."
That view still holds, but investors now need to tread carefully
with Cree. As I noted in a more recent follow-up piece, investors
may be in for a rude surprise when it comes to grossprofit
margins in the quarters ahead, as industry pricing may be falling
too fast. I love this company -- and would really love the stock
on a good-size pullback
3. Revolution Lighting (Nasdaq: RVLT)
This Connecticut-based LED lighting maker lacks Cree's robust
technology platform (fueled by heavy R&D spending), but it
also sports amarket value that is just 5% of the size of Cree.
The intriguing angle here is the September 2012 hiring of Robert
LaPenta, who a decade ago helped build defense contractor
L-3 Communications (
into what has become a $7.7 billion company.
LaPenta has moved quickly to eliminate the company'sdebt and
enhance the product lineup and sales reach. It's a bit too soon
to know whether he can turn Revolution into a profitable and
growing company, but he's making the rights moves thus far.
4. EnerNOC (Nasdaq: ENOC)
Our nation's aging electricity generation infrastructure is also
a source of energy inefficiency. Not only do long-distance power
lines lose power in the transmission process, but allocating all
of that power to the right parts of the national energy grid can
be very inefficient.That's where this company comes in.
EnerNOC uses its Network Operating Center (
) to provide energy management and energy-efficiency solutions to
assist grid operators and utilities. For example, many utilities
must invest in excess capacity to handle unusual demand spikes
that may only happen a few times a year. By sharing theload with
other utilities and working with large customers to agree to
curtail usage at peak times, the utility can save a great deal
ofmoney by cutting the need for additional power plants.
EnerNOC says aninvestment of $1 million in its technology can
save anywhere between $60 million and $100 million in
construction costs. If a utility sees a demand spike coming, it
can shed non-critical loads, deploy backup power and optimize the
existing flow of current -- a far better solution than adding
capacity "just in case."
For a number of years, the company had great success signing up
power plant operators. Sales grew at least 45% every year from
2006 through 2010, but growth suddenly flattened in 2011 and
2012. As a result, shares of EnerNOC plunged from $35 in early
2010 to just $6 by the summer of 2012.
These days, shares areback up into the mid-teens as the company
has resumed a growth trajectory. Analysts expect sales to grow
35% this year, to around $380 million, withrevenues likely to
exceed $450 million next year. Equally important, a company with
a history of operating losses has become profitable withearnings
of about $1 a share expected next year.
Risks to Consider:
These companies' products and services fall into the category
of discretionary spending, and demand can wane if the economy
slumps and companies restrict their spending to necessities.
Action to Take -->
Both Ameresco and EnerNoc are trading well off of their highs.
EnerNoc's revenue trends are already improving, though Ameresco's
rebound will take longer to play out. Regardless, these were once
seen as some of the best ways to invest in energy efficiency, and
as that topic heats up again, expect these firms to again attract
a high level of investor interest.
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