Energy Business

Lazard Defending Fuel-Tech (FTEK)

Fuel-Tech (NASDAQ:FTEK) is being defended by Lazard Capital after the net earnings miss yesterday.  Analyst Sanjay Shrestha, Managing Director & Senior Analyst, Alternative Energy & Industrials, maintained a BUY rating and a $33 price target on Fuel-Tech today.  This was also one of the “Jim Cramer Alternative Energy Picks Reviewed” stocks from last night.  Lazard maintains that the $33 target reflects a 25-multiple of 2010 EPS estimates of $1.60 discounted back one year by 20%.

Fuel Tech reported 3Q revenues and EPS of $15.2 million and $0.04, below our and consensus estimates of $19.5 million and $0.07, reflecting lumpiness with timing of bookings, typical for the company’s end market.  Consolidated revenues were down 24% Y/Y, with air pollution control (APC) revenues down 39% Y/Y due mainly to major awards materializing later in the quarter than previously anticipated.  As a result, management lowered 2007 revenue and EPS expectations to $76-$79 million and $0.25-$0.28 from $80-$85 million and $0.30-$0.35.

Shestha notes that there was a record booking and backlog: booking sat $24.7 million; backlog $28 million up from $9 million at end of last quarter. “We continue to believe the outlook is robust for the company’s APC and FUELCHEM work, as utilities attempt to comply with increasingly stringent air pollution regulations and focus on improving overall plant efficiency. Despite the lower than expected 3Q, we expect the company to exit 2007 with a solid backlog base, setting the stage for excellent growth into 2008/2009 and beyond…. We are lowering our 2007 revenue and EPS estimates to $71.5 million/$0.25 from $80 million/$0.28, but we leave our out-year estimates unchanged as the company’s growth prospects and outlook remain intact.”

24/7 Wall St. has an enhanced viewpoint of this stock.  The reason you saw buying yesterday  after a disappointing result was because Fuel-Tech has one hell of a business model.  Everyone hates coal except for coal mine operators, but that doesn’t matter one bit.  Even in the U.S. with all the alternatives out there, coal-fired power plants are something we are stuck with for probably decades, and we won’t even address Asia.  Only so many nuclear power plants can be built if the permitting is allowed, only so many workers can be hired at any time for this, and only so many plants can be decommissioned in a certain time.

Assuming there are no regulatory loosening factors at work, it is the opinion of 24/7 Wall St. that ‘cleaner coal’ is a fact the world will have to deal with “like it or not.”  That doesn’t assure a higher price for a triple-digit P/E alternative energy beneficiary.  But it certainly explains why there are buyers for this stock every single time it weakens.

Jon C. Ogg
November 7, 2007

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