Low-cost leader in the $1B a year carbon fibermarket
Wind energy exposure to provide boost longer-term: strong demand for wind / adoption of larger blades which often use carbon fiber / strong positioning with leading turbine manufacturers
We continue to be concerned about ZOLT's 1) weak order trends in the wind market (Vestas' outlook deteriorating), 2) glut of capacity (still running at 50% utilization) and 3) inability to land new customers (no big auto win expected for FY11).
We would look to become more constructive on shares in anticipation of a large win in auto or wind, improving industry utilization and stability in the executive suite
$8 PT assumes that ZOLT trades at 2x our CY11 price to sales; multiple justified given the uncertain macro environment and Zoltek's disappointing margin performance
Eoin Treacy's view Subscribers
will be familiar with my ambivalence toward many green energy initiatives because
Chinese companies are often best placed to benefit from western government subsidies
and because wind and solar both sacrifice economics for green credentials.
With natural gas half as polluting as oil, increasingly abundant, cheap, secure and transportable the arguments for continuing to support economically dubious renewable energy initiatives looks untenable. (This article by Josef Auer for Deutsche may also be of interest)
However, given the capital being poured into the sector, there are still likely to be attractive investment opportunities, particularly in minimising energy demand through greater efficiency.
Transmission and distribution companies have been some of the more successful in attracting bullish investor interest and share a relatively high degree of commonality.
MYR Group Inc/Delaware rallied to retest the 2009 peak last week and has become somewhat overextended relative to the 200-day MA. Some consolidation of recent gains appears likely but a sustained move below $20 would be required to question medium-term scope for a successful upward break. Valmont Industries has a similar chart pattern.
Quanta Services has encountered resistance at the upper side of the two-year range and will need to sustain a move above $25 to reaffirm the medium-term uptrend.
Corning, which produces fiber optics and LCD displays, broke out of a yearlong range in late January and has held above it since. A sustained move back below $20 would be required to question medium-term potential for additional upside.
Zoltek, mentioned above, completed its base in December, found support above it three weeks ago and encountered resistance near $16 on Monday. It pulled back sharply this week and will need to hold above $11 to sustain the medium-term bullish outlook.