Taking It to the Next Level
10/08/2010 12:37 pm EST
It looks like Maxwell Technologies (Nasdaq: MXWL) is making a successful transition to a company built around new, cutting-edge products.
On June 22, I wrote that 2010 marked a very important transition for the company. Maxwell really runs two businesses. One business is composed of the older microelectronics (radiation-hardened components and computers for use in space) and transmission (capacitors used in high-voltage electrical transmission lines) products. Back in 2006, these product lines accounted for two-thirds of the company’s sales.
The other business comprises the company’s ultracapacitor BOOSTCAP products. These fast-charge, fast-discharge energy-storage devices are gradually winning design competitions and getting built into products from automotive, truck, and bus electrical systems to wind turbines. In the first quarter of 2010, sales from the BOOSTCAP business finally exceeded sales from the microelectronics and transmission business.
In the long term, I wrote, this transition is exactly what investors want to see, since BOOSTCAP revenues are projected by Needham to grow by 52% from 2010 to 2011. But in the short term, the transition could be tough on the company, because one of Maxwell’s biggest customers for the BOOSTCAP product is the depressed global auto industry.
Well, second-quarter results reported on July 29 and news from the company since then show that transition is going well. In the second quarter, the older microelectronics and transmission business accounted for $13.7 million, or 46% of sales. Sales in that business fell by 2% from the second quarter of 2009. Meanwhile, sales of ultracapacitors climbed to $15.9 million, a 48% increase from the second quarter of 2009.
Gross margins climbed to 40% from 36% in the second quarter of 2009. And earnings of two cents a share were four cents above Wall Street’s projections for a two-cent-per-share loss.
Since then, Maxwell Technologies has announced that it has delivered BOOSTCAP ultracapacitors for more than 1,000 hybrid transit bus drive systems through the first three quarters of 2010, and it projected continuing strong demand for the future. In another key market, Maxwell reported that ultracapacitor products for wind energy applications through the first three quarters of 2010 are running more than 40% ahead of wind-related sales in the same period last year.
All this has put the stock on something of a tear since it hit a low of $11.24 on August 26. As of midday trading on October 8, the shares change hands at $15.84, up 41% from that August low.
Way back on June 22, I lowered my target price on Maxwell Technologies to $20 by April 2011 from $25 by September 2010, on fear that the transition would be tough for the company to handle. With the economy looking so uncertain in 2011, I’m sure that we’ll see plenty of volatility in this stock, but I think the move to profitability and the momentum in the ultracapacitor business are both very good fundamental signs.
And Maxwell Technologies fits in well with my view that we’re in the early stage of the recovery, when shares of companies that sell to other companies rather than to consumers are the stocks to own. (For more on what I’ve called the bifurcated US economy, see this post.)
As of October 8, I’m setting a target price of $22 by April 2011.
Full disclosure: I don’t own shares of any company mentioned in this post in my personal portfolio.