Analyst Still Sees Upside in Opower

Opower Inc. (NYSE: OPWR) may have beat earnings expectations and may be well off of its 52-week high, but some substantial upside may remain ahead. Canaccord Genuity has reiterated its Buy rating on the software provider. It also has a $14.00 price target that implies close to 40% upside, if the firm’s call is accurate.

Before considering the analyst call, it is important to note what the actual earnings report offered. Opower ended the quarter with year-on-year revenue growth of 15% to $38.9 million. Its operating loss was $2.6 million, compared to $2.9 million for the same period in 2014. Adjusted EBITDA was $0.1 million, compared to a $1.1 million loss a year ago, and Opower ended the quarter with $105.0 million in cash and cash equivalents.

Opower further said that it signed another major contract with a large U.S. utility. That deal was said to be worth nearly $50 million over six years, covering a large energy efficiency program, and was said to be part of a master agreement covering operating subsidiaries across multiple states.

Richard Davis, Canaccord Genuity’s analyst following the company, was very positive on Opower’s prospects by offering cloud-based services to America’s utility industry.

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Davis sees Opower shares as a top bounce-back stock for 2016. Of course, the path is far from set in stone here. His report from Wednesday said:

We believe the stock could benefit from: 1) new product cycle as additional customer-facing modules roll out, 2) sales efficiency from the bulge of 2014 sales hires as they get their footing in this long sales cycle to the utilities customer base, and 3) buying demand as the heretofore correct ~8 million shares, 40+ days to cover short position proves to have overstayed its welcome. Our view is that the best strategy is to gradually build a full position in recovery stories like this because in our experience roughly 0% of them deliver a straight-line trajectory back to glory.

Davis further noted that Canaccord Genuity has no hesitation recommending that investors start to build that position now.

Opower shares were last seen trading at $1010, within a 52-week range of $8.03 to $18.74. Its market cap is $519 million, and the Thomson Reuters consensus estimate is for revenues to be up almost 15% in 2015 to $147.4 million and to grow another 19% to $176.5 million in 2015.

Opower’s consensus analyst price target is derived only from six analysts, but it was listed as $15.00. The highest analyst price target is $20.00.

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