Zacks increases price target of Acorn Energy to
Steven Ralston, CFA
Acorn Energy (
announced that a definitive agreement has been signed to acquire
OmniMetrix, LLC for $8.5 million. OmniMetrix designs, manufactures
and markets wireless monitoring systems for backup power generators
and cellular towers. Also, OmniMetrix provides remote-site
monitoring systems for pipeline integrity and landfill gas.
Headquartered in Buford, Georgia, OmniMetrix generated revenues of
$3.0 million and pre-tax income of $800,000 in 2011. Utilizing a
subscription business model, OmniMetrix generates a recurring
OmniMetrix' Smart Service monitoring system tracks the operating
status of backup emergency power generators in real-time. The
emergency generator market serves the backup power requirements for
critical sites, such as hospitals, nursing homes and cell telephone
towers. The Smart Service monitoring system gathers static data,
such as fuel level, coolant level and battery charge level, on a
constant basis. During the periodic testing of the emergency
generators, performance metrics are monitored to confirm normal
operational characteristics. Some measured factors include oil
pressure, oil temperature, coolant temperature, battery voltage,
generator phase voltage, generator phase current, exhaust
temperature and RPM. Technicians are informed of any measurements
outside acceptable levels by e-mail and/or text message. Minor
issues can be repaired remotely, including resetting the equipment.
OmniMetrix also provides the Pipe-to-soil Monitoring System (PSM)
to remotely detect leaks associated with pipeline corrosion.
Powered by a 10-year lithium battery, the monitoring system
periodically measures the reference cell voltage and wirelessly
transmits alarms when values are detected outside acceptable
limits. The PSM sensor units are buried near pipe risers for the
deployment of the in-soil reference cell and the installation of
the pipeline connection.
Our expected price-to-sales ratio valuation range is being
increased from 1.1-3.2 to 1.8-3.9 based on two developments. First,
it appears that in 2012, Acorn's subsidiaries should benefit from
the marketing efforts in their long sales-cycle businesses, and we
expect accelerating growth of the sales base. DSIT has already
received a very significant $12.3 million contract from an
undisclosed Asian customer. US Seismic Systems should benefit from
the five pilot programs from oilfield service and equipment
companies received in 2011. The $1.6 million proof-of concept
contracts could generate $36 million in annual revenues if they
transition from development to production contracts during 2012.
Also GridSense's TransformerIQ monitoring project for a leading
southeastern electric utility should empirically demonstrate the
cost effectiveness of employing smart monitoring systems for
electricity transmission and distribution networks.
Second, Acorn's stock is benefiting from increased institutional
sponsorship. Columbia Wanger Asset Management now holds 2,455,000
shares (14.02% of the shares outstanding), having recently
purchased 130,699 shares according to the latest reported 13-F. In
addition, Verition Fund Management LLC filed a 13G in January
declaring its ownership of 888,541 shares (5.07%) of Acorn Energy.
As a result, institutional ownership of Acorn energy's stock is now
Our price target is being raised based on a P/S valuation on
annualized current quarter sales of the Acorn's four operating
companies plus a multiple on the cash on the company's balance
sheet that may be utilized for acquisitions similar in valuation to
OmniMetrix, namely 2.8 times sales. Based on an expected 3.9
price-to-sales ratio valuation on annualized quarterly sales, our
price target for the first quarter of 2012 (based on our expected
results for the fourth quarter) is now $10.00.
We reiterate our Outperform rating on Acorn Energy.
To view a free copy of our most recent research report on ACFN
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