07:24 EDT ENOC theflyonthewall.com: EnerNOC share pullback a buying opportunity, says JP Morgan
JP Morgan recommends buying shares of EnerNOC on the recent pullback and expects upward momentum in the DR market in the next year or two. Shares are Overweight rated. :theflyonthewall
Buying opportunity? Yes, maybe, no? Does not matter what JPM thinks. What matters is whether investor's facts/reasoning are correct. This depends on investor correctly evaluating ENOC's normalized earning power going forward. No one in this msg thread mentions ENOC's earnings power as the overriding factor, which it is for long-term investors like me.
I bought ENOC at $24 average recently based on it being a triple in 10 years under my worst case scenario. I conservatively figure a 10% NPM normalized. Why? I have no special insight. Based my NPM on nature of ENOC's business, which is as a software as a service provider with low personnel and capital equipment costs once infrastructure is built out. (They only have about 100 employees for a $300 million revenues business!) Also, their SasS should give free CF that is at least equal to EPS. Also conservatively figure EPS growth of 10% APR over the next 10 years. Why? Again no special insight. ENOC should at least grow at that rate based growth on (a) overall industry growth of DR services in US ( which is extremely probable given immediate savings that DR achieves for customers and federal gov't support for DR), (b) build out of ENOC's US network, (c) planned international expansion into Europe, and (d) ENOC's industry leading technology and market share. Thus, I see normalized 2011 EPS of $1.30 (GAAP EPS will be half this - I'm normalizing to value business only, not to predict 2011 EPS). With normalized $1.30 2011 EPS (for valuation purposes only) growing worst case at 10% APR, EPS will reach about $4 in 2020 in worst case. (Impossible to be more precise than 1 significant figure for 2020 EPS.) Putting a 20x multiple on $4 gives a $80 stock in 2020. That's roughly a double to triple (10%-12%% APR return) from here under worst case scenario. There are very few stocks of my acquaintance where I can say this with high personal confidence.
Are my facts and reasoning correct? I think it extremely likely they are and so put my money down on ENOC. But my opinion is irrelevant to you. Every investor must do his or her own dd and then act accordingly.
However, when you find a precious pearl, sell everything you have and buy it.
chasetod, thanks for your post and the detail behind your assumptions. Yesterday I began building a position again in ENOC with my first purchase at 24.13.
In fact, there has been some good discussion here in the past month about Enernoc's eps, multiple and going forward growth.
Your core assumption of a pps triple in 10 years as a worst case scenario is aggressive in my view. Enernoc's peripheral services - their value and earning power - are not yet validated. The Company's core DR offering is subject to erosion from competing grid and information technologies -- highly dynamic and volatile operating environments.
Contrary to what you write, the cost base is, in fact an issue - and a systemic one with Enernoc. It's not the maintenance of the company's services that drive the headcount -- but rather, the continual need at this stage for development of new businesses (geographies, segments, etc) to keep this jugernaut rolling. It hasn't been validated yet that Enernoc can slow down the fixed cost growth. And when the ground is changing under your feet as fast as it is Enernoc's, that's kind of a death defying thing.
These facts, combined with your extreme time-frame of 10 years -- brings on a whole bunch of uncertainty about the viability of Enernoc's offering, and it's ability to add value (and therefore generate earnings) in such a plentiful and sustained way. That's why the PPS has dropped recently. Street is saying wait and see now.
Secondly -- "free cash flow equal to eps" over that same period. You really have the pedal to the metal here. I unerstand your primary assumption of low capital costs/depreciation. But your model, you assume zero retained earnings (with full distribution of earnings to applicable shares). How, in such a dynamic environment, do you grow net earnings 10% year on year, with no investment back into the business?
If you can show me how, I'll buy my next lot Monday.
Happy New Year to you and all,
m1 golfer - why do you call anyone who raises questions about the prospects of this company a basher? I've been on this board for years now, and have never taken other than an objective position.
I have no position now in ENOC, and would like to capitalize on the hard/fast upswings this stock takes/that have I have capitalized on before.
But it just dropped from 36 to 23, has recovered a bit, but then was downgraded from a target of 25 to a target of 15 by the same analyst that first downgraded to 25 (whereby everyone gasped and said, NO way).
M1 golfer - look at the projected earnings of 71 cents and tell us why the company will outperform that -- or gain a multiple (based on project growth and quality of earnings) that makes so what you said in your post, that this is an "excellent entry point."