Wunderlich is one of 24 analysts following ITRI. Of the other 23 analysts, one rates 'sell' and the rest rate 'hold (9), buy (6), or strong buy(7)'.
Wunderlich drops its target from $38 to $22 (note that the consensus of all analysts is $58.) A drop of this magnitude suggests that either their current analysis is grossly wrong (i.e. the drop to $22) or their prior price target of $38 was grossly wrong. Either way, it suggests that Wunderlich does a very poor job of setting price targets.
Wunderlich bases the target on NA meter sales and the stimulus package. Smart meter deployment is not about the stimulus package...it is about increasing revenues through TOU pricing. Utilities will generate more revenue through the ability to charge higher rates at peak demand times. In addition, Itron is not limited to the sale of smart meters in NA, they sell complete systems worldwide. Here is a PR from today relating to deployment in France -
"During the pilot project, Itron delivered 100,000 meters and 3,500 concentrators.....According to the Minister, 7 million Linky meters will initially be deployed in France between 2013 and 2014, followed by an additional 28 million between 2015 and 2018. Itron, a leading global provider of smart metering solutions, has long prepared for this project."
That is 35M meters and AMR units, not to mention the concentrators and meter management software. Assuming average cost per meter (with AMR, concentrators, and software amortized) of $100, this is a $3.5B contract over 7 years, or about $500M/year in revenue....from one contract.
Final comment: if Wunderlich believes that the smart meter market is going no where....where does that leave a company like Echelon that sells the AMR unit? No meter, no AMR.
Well first of all Echelon doesn't sell AMR, they are a control networking company so they are AMI all the way. Second, I know how frustrating it is when an analyst comes in and spoils the party and downgrades your price target, but many times they can be pretty accurate. You need to go back and look at their track record for these sorts of calls. Itron has traditionally been strong in North America but has had a difficult time expanding into international markets where they compete against Echelon w/PLT, Landis & Gyr, and Elster. While today's pr from Itron gives them a lot of hope they can land part of the deal there are other players here at work too. Echelon has done a 90K meter pilot in France since 2008 and their track record for reliability and performance are unmatched in the industry. Plus, Enel does a lot of business in France and has a long history with Echelon and has an executive on the Echelon board.
Project Includes First Sell-Back of Solar Produced Electricity in France Using NES Meter
(San Jose, CA -November 5, 2008) - Echelon Corporation (NASDAQ: ELON) announced today that the Group of Electricity Distributors in France (GAELD), a consortium of electricity distributors, has chosen Echelon's Networked Energy Services (NES) System for up to 90,000 homes. The project, awarded to Echelon partner Alter Way, is expected to begin within the next few months and to be completed by 2013. In the past two months the NES system has gained momentum across Europe, including projects in Germany, Denmark, and now France.
One of the utilities in the GAELD consortium, Régie d'électricité de Loos, is allowing homeowners to sell back solar produced electricity to the utility. They are doing so using the ability of NES meters to measure the amount of electricity produced separately from the energy consumed, as opposed to simple "net metering" in which the details of production versus consumption are lost, making this the first instance of Echelon's meter to be used in an alternative energy application in France. Echelon's NES IEC Meter Click image to enhance or reduce.
"We chose Echelon's NES system because we believe it is the most advanced, flexible, and cost-effective metering infrastructure solution available. The NES system provides a solid, reliable backbone for our smart metering system, and integrates easily with software and solutions from other providers, ensuring us that we're installing a truly future-proof solution," said Michel Fruchart, managing director, GAELD. "While the French market has many unique requirements, because of its flexible design the NES system can be adapted to our market without a costly and time consuming effort, giving us a solution that is available and deployable today and that we expect will meet our needs for years into the future. We believe that it will allow us to extend our system based on future needs and offerings we might want to provide to our customers at a later date, such as prepayment, remote reading of both gas and water meters, and in-home services."
"We are excited to increase our position in the French market, which has traditionally been difficult to enter due to strong local competition. We believe our success here, and recently in other countries such as Germany and Denmark, is a reflection of the growing awareness among utilities of the benefits that the NES system, together with ‘smart grid' applications, bring to their operations," said Frits Bruggink, Echelon's senior vice-president and general manager, service provider group.