American Superconductor (AMSC) Plunged Following Acquisition, Lowered Guidance

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07:55:57 pm on March 14, 2011

Shares of American Superconductor (AMSC) plunged to another 52 week low this morning with heavy volume after the company announced a $265 million acquisition of Finnish company The Switch and subsequently lowered guidance in the short term.  CEO Greg Yurek calling 2011 a “transition year” likely didn’t help the stock either. 

Let’s start with the acquisition news.  Sure, in the short term the financials take a hit, but it appears AMSC acquired a key technology which will be a growth driver for them in the future.  The Switch manufactures permanent magnet generators which eliminate the need for gearboxes and increase efficiency by nearly 10% over traditional wind turbines in a 2MW turbine.  According to AMSC they may also prove to be in an important ingredient in offshore wind turbines because they won’t rust out over time as traditional gearboxes do.  The company believes the acquisition will help them achieve their goal of $1 billion in revenues by 2014.

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I like this move from AMSC and it solidifies them further as a major player in the global wind turbine market. I believe the selling this morning was an overreaction and near-sighted.  Clearly a few felt the same with the stock moving well off the lows to close the day. 

So how does the acquisition impact guidance?  The company now expects FY10 revenue will be toward the lower end of its $430M-$440M forecast range vs. the consensus of $438.89M.  The EPS guidance also gets reduced to $1.31-$1.35 from $1.33-$1.38.  The consensus analyst estimate is $1.38.  For this year, the company is calling it a transition year and expects revenue growth to slow to 5-10%, before increasing again in 2012

"Fiscal 2011 will be a transition year for AMSC – one in which we continue to develop and deploy new products, book new orders, and implement new strategies for growth while continuing to grow our top line and generate solid profits. We are now in the process of reengineering our company to build on the strong platform we have established over the past several years. As of April 1, 2011, we are reorganizing our business into Wind and Grid reporting segments."

The company said, "The Switch is expected to play a key role in our Wind business and serve as a catalyst for growth both in the near and long term. As a result, our combined company is expected to grow more rapidly and profitably beyond fiscal 2011 to achieve our target of US$1 billion in revenues and operating margins in excess of 20% by fiscal 2014."

In my opinion shares of AMSC are becoming mighty compelling at current levels, but it’s probably a bit too soon to jump in.  They may need to test the next level of support in the 20-21 range particularly if the overall market continues to come under pressure.

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