Elster (ELT), a Brazilian utility service company, is one of the world’s largest providers of electrical, gas and water control devices. Its unique distribution monitoring, smart metering and demand response products enable better power efficiency and conservation for utility and energy companies across Brazil, North America and Europe.
Additionally, and perhaps more importantly to you and me, Elster is a buy-out candidate.
Buy-out rumors surrounding Elster circulated last week. The Wall Street Journal fed those rumors by reporting that Elster might fetch up to $2 billion in a sale.
Interested buyers are rumored to include European industrial leaders such as ABB (ABB) and Siemens (SI) as well as a few private names. Should the rumor prove accurate, the shares would jump roughly 11% from their current $16.50 share price.
Aside from the chatter, this is a great stock to own if you’re serious about a becoming an investor in “smart grid” technology. If we are to meet our growing energy demands over the next three decades, we must focus on more than power production methods. Production is only one part of the power consumption equation.
We must also seek better delivery systems. The grid that drives power to your home is more than 120 years old in some American municipalities. That dated technology is both inefficient and unsafe. It is also prone to sporadic power outages. Consumers have demanded better service from utility companies. Fortunately, utility companies have listened.
While it may seem like something out of an Arthur C. Clarke novel, the next phase in power distribution will utilize a smart grid configuration. This grid will allow utilities and consumers to communicate back and forth. The creation of this smarter electrical grid suggests a greater output with lower costs and more reliable power.
Smart grids and smart meters allow the user and the utility to talk remotely. That means utilities can direct power usage where it’s most needed and be notified of blackouts in real time. But utility workers must install devices on each meter before the grid can communicate with the customer. Installation companies stand to make huge profits in the years ahead as utility companies expand smart grid systems.
Although Elster went public in 2011, this business has been around for 175 years. Its financials have also been on a steady climb higher since 2009.
More impressively, the stock has been stable over the past year. The shares trade near $15, which is about the same price it traded for one year ago. That’s particularly impressive because Brazilian stocks, measured by Brazil iShares (EWZ) , declined 30% over the same time.
The smart grid is a much-needed upgrade for utilities and within that industry there is no better company than Elster. Look for the shares to find support at the 50-day moving average (orange line) and rise back up to $17 over the next few weeks. Should the rumors prove true, the stock would eclipse $18 - and perhaps even higher - should any offer exceed initial expectations.
This chart shows the price of Elster shares along with an important support area for you to monitor
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