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Why TPI Composites Stock Just Popped 13%

Rich Smith, The Motley Fool

What happened

Shares of wind turbine blade-maker TPI Composites (NASDAQ: TPIC) caught an updraft on Wednesday and is soaring 13% higher as of 3:25 p.m. EDT. For this, you can thank the friendly analysts at Swiss megabank UBS, who announced they're upgrading TPI to "buy" today and assigned the stock a $31 price target.

TPI Composite shares were trading for less than $26 at the time UBS made its announcement, so you can imagine that got some investors' attention. More important than the endorsement, though, was the reason for it.

Wind turbines on mountain

UBS sees a long road of growth ahead for the nation's biggest maker of wind turbine blades. Image source: Getty Images.

So what

As UBS explained in a note covered by StreetInsider.com, TPI has guided investors to expect it to book between $1.3 billion and $1.5 billion in fiscal 2019. (To be clear, TPI, like most stocks, is still just barely a quarter into its fiscal year 2018 right now -- so this is guidance for next year). Still, UBS is basing its price target on its projection of sales one year out.

Citing TPI's opening of four new "additional contracted" production lines to begin producing turbine blades in H2 2018, UBS is now confident that TPI will book sales of at least $1.4 billion next year. That would work out to almost precisely 50% sales growth in comparison to fiscal 2017 sales, according to data from S&P Global Market Intelligence.

Now what

Further out, UBS says it's becoming "increasingly optimistic on the U.S. wind market outlook post-2020" and is raising its long-term earnings estimates accordingly. Already, analysts on average were predicting 35% compound earnings growth for TPI Composites over the next five years, which would seem to be more than enough growth to justify TPI's current valuation of less than 19 times earnings.

But the faster that growth comes in, the cheaper TPI Composites stock becomes.

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Rich Smith owns shares of TPI Composites, Inc. Common Stock. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.