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Originally posted by billyjoe
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MEK took advantage of deregulation...I made a mistake though...I have only watched it off and on for 7 years...not 10. I believe it was about the time they changed their name. I have mostly just followed the price not their biz plan. The main reason was because I know someone who bot it at about 9 maybe 6 years ago...we had been watching it... then added in the 1's about 3 years ago.
I remember when they got listed on the AMEX last year and then articles started appearing...unfortunately, I went back to those saved articles just now...but they are all expired.
They were featured at Briefing last year though and I saved that (below)...but overall I think of them as a company that attempts to add some sanity to the crazy utilities industry.
Briefing.com
Stock Watch
December 12, 2005
Metretek Technologies -- a momentum name that's arguably cheap:
Even though Metretek (MEK, $7.84) shares have rallied more than 75% since we
profiled the company in September as natural gas momentum play, we now think
that recent potential orders, as well as more business that could be
announced early next year, make a case for MEK being a potentially
inexpensive growth name that could see a stock price of $12 or more.
As we noted previously, Metretek provides energy measurement, power
generation and backup systems to both industrial and commercial customers.
The company has three main business units:
1) The PowerSecure division designs Web-based systems for industrial and
commercial users of electricity that allows them to automatically switch to
backup power systems during peak energy-use hours, when utilities are
charging their highest rates. 2) Southern Flow provides a variety of natural
gas measurement services to producers and operators of natural gas
production facilities. 3) Metretek Florida provides data collection and
other solutions for automatic meter reading and other types of remote
monitoring and collection.
In 2006, the company anticipates $30.5 mln in revs from PowerSecure, $13.1
mln from Southern Flow, and $5.3 mln from Metretek Florida.
We believe that PowerSecure, will be not only the largest, but the
fastest-growing group next year. Big-name customers such as Target, Lowe's
and Tyson are using PowerSecure's systems to help them run more efficiently
as energy prices have climbed. Many of those companies need backup power
systems, anyway, and the PowerSecure system can save them enough money to
recoup their capital outlay in as little as a few years. While we know of
many solutions that can help customers save on energy costs (lots of load
controllers out there, for example), we believe that PowerSecure's backup
power/energy efficiency offering is unique. We think that many more
customers could take a look at PowerSecure systems as a way to battle rising
energy costs. We see a particular opportunity to sell to retailers that are
seeking cost advantages in an ultra-competitive environment.
Right now, PowerSecure generates roughly 70% of revenue in just two states.
Yet the company is in the process of rolling out PowerSecure to seven
additional states. And we would argue that over time, we see no reason why
PowerSecure cannot be sold in all states, targeting as many as 50,000
customer locations, at a cost of $250,000 to $2 mln per installation.
As a result, of the company's expansion efforts, there is much more
potential business. Metretek announced last month, for example, that it has
received verbal orders from two large commercial customers that are expected
to generate sales of more than $45 mln next year. We note that MEK generated
revenue of just $35 mln for all of 2004.
In the event that those two verbal agreements are finalized, earnings
guidance will likely be increased substantially. For fiscal 2006, MEK is
anticipating net income of about $3.8 mln, or $0.30 per basic share, on
total revs of about $49 mln. Yet that guidance does not account for any
business from the two verbal orders, which some are expecting could add
another $0.50-$0.60 in EPS next year.
It's not a foregone conclusion that MEK will finalize the two orders it has
announced. But we think that management would have to be foolish to talk
about business that it did not believe it would close. Including the two
orders, we think that earnings of $0.80 to $0.90 could be achieved. We note
that the company is guiding for EPS of roughly $0.19 in 2005.
Assuming the low end of our potential range, or $0.80 a share, MEK trades at
9.6x next year's earnings. We think that a significantly higher EPS multiple
could be justified. Not only does MEK have a chance to post EPS growth of 4x
next year, revenues could more than double with the addition of the two
orders. A P/E multiple of 15x seems reasonable for a company posting that
kind of growth... which says to us that MEK could reach $12 a share.
And that $12 assumption does not include any other large contracts. We are
hearing that MEK has several other significant ones pending, any of which
could add tens of millions in incremental revenue, and significant earnings
upside beyond our assumptions. Additional deals would also make Wall Street
more comfortable with the story, as it could make results more predictable
beyond next year.
Despite the significant run in Metretek's stock, we therefore think that
this stock is still worth a look. Given the recently strong run, we would
ideally prefer to enter this type of stock on a pullback-- perhaps to the
$6.60 to $7 range. We would not be willing to own MEK below $6.60,
however -- Mike Tarsala, [email protected].
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