Why American Superconductor Homeland-Exelon Pact Will Bring More to Come (Updated)

American Superconductor Corp. (NASDAQ: AMSC) has seen its share of ups and downs, with more downs than ups. Still, this company has incredible technology in wind and grid tech, and its current market value allows investors to get into alternative energy and clean-tech without paying much of a premium to the company’s actual book value. Now a fresh announcement from the company only highlights this turnaround even more.

This report has been updated below.

A press release issued on Wednesday indicates that Exelon Corp. (NYSE: EXC), via its ComEd unit, has agreed to develop a deployment plan for American Superconductor’s high-temperature superconductor technology to build a superconducting cable system that will strengthen Chicago’s electric grid. Its shares rose massively on the news — and for good reason.

This announcement is only a small part of why we named American Superconductor as one of seven lesser-known clean tech and alternative with massive upside potential. We are not operating under the assumption that anything will happen overnight for this company, but the opportunity in the United States alone is massive — and that is before you get into its overseas operations.

The company went on to say that the Resilient Electric Grid (REG) effort is part of the U.S. Department of Homeland Security Science and Technology Directorate’s work to secure the nation’s electric power grids and to improve resiliency against extreme weather, acts of terrorism or other catastrophic events.

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Exelon’s ComEd went on to say that it views this project as a natural extension of the infrastructure improvements and technological upgrades that have been underway for the past two years as it develops and deploys the smart grid. Now consider that Chicago is a massive city, and this could be a blueprint for ComEd and other utilities and power companies around the country.

This one announcement is great news for the stock, but investors should consider that this represents just one step in what may be a much more significant revenue and order driver ahead — ComEd even said so. This installation was listed by ComEd as being “more than three miles of superconductor cable” but it also notes that this creates the most extensive superconductor project of this nature in the world. ComEd even went on to say that this project (which will not only support the City of Chicago) can serve as a model to enable widespread implementation of the superconductor technology nationally and globally.

Exelon is based in Chicago, but it does business in 48 states, the District of Columbia and Canada. It claims to have approximately 35,000 megawatts of owned capacity, giving it one of the nation’s cleanest and lowest-cost power generation fleets. This is just some of what its operations cover:

  • Its Constellation business unit provides energy products and services to approximately 100,000 business and public sector customers and approximately a million residential customers.
  • Exelon’s utilities deliver electricity and natural gas to more than 7.8 million utility customers in central Maryland (BGE), northern Illinois (ComEd) and southeastern Pennsylvania (PECO).
  • ComEd provides service to approximately 3.8 million customers across Northern Illinois, or 70% of the state’s population, including the City of Chicago.

American Superconductor President and CEO Daniel P. McGahn said on the news:

We greatly value our partnership with ComEd. As one of the nation’s largest utilities, this project establishes ComEd as the lead utility in our program with DHS and speaks to the unique benefits of AMSC’s technology in addressing critical challenges facing the power grid. As provided in the DHS contract, AMSC will initiate a similar deployment plan with at least two other U.S. utilities. … Utilities around the world are investing tens of billions of dollars on smart grid technology designed in part to create a more redundant and resilient grid. We believe that the Resilient Electric Grid system, which is enabled by AMSC’s unique high temperature superconductor technology, has the potential to play a significant role in protecting the infrastructure assets so vital to our electrical systems … we believe AMSC is now in a position to offer this system solution to cities in America and around the world.

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There is one last thing to consider here that may further create the springboard for this long-term turnaround. Nasdaq listed its end-of-June short interest as being more than 8.1 million shares. That was the stock’s largest short interest in over a year.

American Superconductor shares just went into blast-off mode on this news. Its stock was up more than 20% at $1.95 on more than 3 million shares after about 40 minutes of trading (four times a full day’s normal trading volume).

UPDATE 2:20 p.m. Eastern Time: American Superconductor shares were up 20% at $1.95 and hit a high of $2.10 on the day. What should stand out here handily is that American Superconductor’s trading volume was 8.8 million shares. That is well over ten times normal trading volume on a typical day. The 52-week trading range is $1.25 to $3.06, and note that this was a $30 and higher stock before its troubles in China popped up a few years ago.

As far as outside coverage, Bloomberg showed that this was the biggest rise in nearly five years – and that the company will realize close to a total of $60 million in revenue for its part of the deal. To put that in perspective, AMSC’s fiscal year-end of March 31, 2014 had revenues of $84.1 million.

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