On Thursday, February 27, ComEd (Commonwealth Edison Company) announced that it plans to file a request to the Illinois Commerce Commission to accelerate its smart meter instillation timeline. Under the accelerated plan, ComEd would install over 4mn meters by 2018, ahead of the currently scheduled 2021. If approved, ComEd would increase 2014 meter installations from 160,000 to 500,000.
We believe, if approved, an accelerated deployment could represent material revenue and earnings upside to Silver Spring in 2014, given ComEd is the largest component of Silver Spring's backlog and we currently assume a 160k meter deployment in 2014. We currently forecast 2014 billings to grow 7% yoy to $368mn, slightly above consensus and within the range of company guidance for 5-8% growth.
Sizing the incremental opportunity - Based on an incremental 340k smart meters in 2014 and a base case ASP of $50 per Silver Spring module, we estimate approximately a $17mn hardware billings opportunity. If we use our current 2014 revenue per endpoint estimate of ~$100 (vs 2013 at $111), it would imply incremental billings of $34mn. Therefore, factoring in potential installation and service revenues, we estimate potential billings of $20-40mn, representing an incremental 6-11% revenue upside on our current estimates.
We reiterate our Buy rating on Silver Spring shares given its strong, $1bn backlog and significant secular growth opportunity. We maintain our 12-month price target of $23, based on a CY14E EV/S of 2.7X. Key risks include competition, lumpiness, lack of new customers, and legal developments.
Let's see how the Illinois Commerce Commission and PUCO rule. I surely don't trust Goldman to make an accurate assessment in this market; far smarter, ethical, and more experienced companies have been tripped up by the timing and execution of smart grid awards and installation timetables. Haven't checked but by chance was Goldman an underwriter in the IPO?
but how did you ever guess? they were indeed one of the underwriters...
Redwood City, CA – March 12, 2013 – Silver Spring Networks, Inc. (NYSE: SSNI), a leading networking platform and solutions provider for smart energy networks, today announced the pricing of its initial public offering of 4,750,000 shares of common stock at a price to the public of $17.00 per share. The shares are expected to begin trading on The New York Stock Exchange on March 13, 2013 under the symbol “SSNI.” All of the shares being sold in the offering are being sold by Silver Spring Networks. The underwriters have a 30-day option to purchase up to an additional 712,500 shares of common stock from Silver Spring Networks at the initial public offering price.
Goldman, Sachs & Co. and Credit Suisse Securities (USA) LLC are acting as joint book-running managers for the offering and Piper Jaffray & Co., Stifel, Nicolaus & Company, Incorporated, Robert W. Baird & Co., Canaccord Genuity Inc., Evercore Group L.L.C., and Pacific Crest Securities LLC are acting as co-managers.