Zacks increases price target of Acorn Energy to $7.75
Steven Ralston, CFA
Based on strong order flow at DSIT and USSI, a war chest of over $50 million from the sale of CoaLogix and increased institutional ownership, Zacks raised its target of Acorn Energy’s stock to $7.75. With the recent sale of CoaLogix, the company has excess cash of $3.32 per share. In addition, due to management’s successful execution on its strategy, all three subsidiaries are benefiting from important orders.
In December, Acorn Energy (ACFN) announced that its 84%-owned DSIT subsidiary received a very significant $12.3 million contract from an undisclosed Asian customer. With revenues at DSIT having been under pressure in the second half of 2011, primarily due to the delay of a follow-on order of a large expansion project, both the top and bottom lines of DSIT will benefit from this order, which potentially will enable DSIT’s revenues to double in 2012.
In the second half of 2011, Acorn announced that its fiber optic sensor seismic monitoring system subsidiary, US Seismic Systems (Other OTC:USSIF.PK - News), received five significant orders for pilot programs from oilfield service and equipment companies. Though the value of the proof-of concept contracts is approximately $1.6 million, the contracts could generate $36 million in annual revenues if they transition from development to production contracts during 2012.
At GridSense, revenue growth is currently being driven by a major TransformerIQ monitoring project by a leading southeastern electric utility. Later in 2012 when positive results of the installations are announced, other utilities should be able to observe the cost effectiveness of employing smart monitoring systems for electricity transmission and distribution networks.
Finally, on January 4th, Verition Fund Management LLC filed a 13G declaring its ownership of 888,541 shares of Acorn Energy or 5.07% of the outstanding shares of the company. Institutional investors owned approximately 28.9% of the outstanding shares of the company at the end of the latest reporting period (September 30, 2011). Total holdings by institutions increased 1.2 million shares (or 6.9% of the shares outstanding) during the last reported quarter. Columbia Wanger Asset Management, LLC was the largest holder (13.3%), including the purchase of 2,324,301 shares during the latest quarter. Other major institutional holders include: Dimension Fund Advisors (2.8%), Austin W. Marxe and David M. Greenhouse (2.5%), Cutter & CO Brokerage (1.4%) and Ameriprise Financial (1.3%). Subsequent to the required quarterly institutional investors reporting period, Verition Fund Management LLC filed its 13G; therefore, it appears that institutional ownership is currently approximately 33.9%.
Due to the expected accelerating growth of the sales base, our price target is now being based on a P/S valuation on annualized current quarter sales of the remaining three operating companies plus the excess cash on the company’s balance sheet. Previously, we utilized a P/S ratio on trailing 12-month sales. Based on an expected 3.2 price-to-sales ratio valuation on annualized quarterly sales, our price target for the fourth quarter of 2011 (utilizing reported results for the third quarter) would have been $6.95. However, looking forward, our price target for the first quarter of 2012 (based on our expected results for the fourth quarter) is $7.75.
We reiterate our Outperform rating on Acorn Energy.
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