Solar is getting a lot of buzz on Wall Street, but its green cousin, wind, is also hot.
Wind is viewed as a viable alternative to traditional energy sources. Most of the biggest companies in the wind energy field, however, are based outside the U.S.
"It's actually quite difficult to invest in wind," said Ron Pernick, an analyst with research firm Clean Edge.
Still, three U.S.-traded companies show promise in the wind energy field: materials company Zoltek, (ZOLT) turbine designer American Superconductor (AMSC) and energy-storage device maker Maxwell Technologies. (MXWL)
The three companies have leveraged their technologies or used acquisitions to expand sales in the wind market. The trio are tapping a market that's larger, and at the moment growing faster, than solar energy.
Last year, global revenue from the sale of wind turbines and installation of wind-power systems rose 52% from 2005 to $17.9 billion, says Clean Edge. Solar power rose 39%, to $15.6 billion.
Clean Edge estimates that in 2016, wind power revenue will hit $60.8 billion and solar revenue will be $69.3 billion.
Wind power is gaining as an energy source because costs are falling, says Stuart Bush, an analyst with RBC Capital Markets. He says the cost of producing wind energy has come down enough that it's nearly on a par with electricity.
No. 2 New Energy Source
The American Wind Energy Association says wind was the second-largest source of newly generated power in the U.S. the last two years, behind natural gas.
The world's largest makers of wind turbines include Denmark's Vestas and Spain's Gamesa. The biggest U.S. maker is a unit of General Electric. (GE)
Pernick estimates GE's wind turbine revenue rose 50% in 2006 to $3 billion, but that still accounts for just 2% of the conglomerate's sales. "Wind is not going to move GE's bottom line," said J. Michael Horwitz, an analyst with Pacific Growth Equities.
But wind could put a lot more air under Zoltek's sales. The company has long made strong and light carbon-fiber materials for aerospace companies for use in making airplanes.
Those materials, says analyst Bush, are getting more attention from the wind industry. Windmills now are made mostly of fiberglass. To generate more power, the blades must get longer. But extending blade lengths can make their fiberglass bodies crack and break, Bush says.
Zoltek's carbon fiber, however, is light and durable enough to fix that problem, he says.
"Zoltek has basically proven that it can add capacity faster and cheaper than anybody else," Bush said.
At the end of March, Bush raised his target price on Zoltek stock to 45 from 32, maintaining an outperform rating. He says gross profit margins could hit 35% or more compared with 26% in the quarter ended Dec. 31, partly on the strength of wind sales.
For the quarter ended Dec. 31, Zoltek's sales nearly doubled vs. the year-earlier quarter to $30.3 million. The stock has more than doubled since mid-August.
American Superconductor has stepped into a new area of the wind power market.
The company, known for its high-end wiring, bought Austria's WindTec, which designs wind turbine systems, in January. Since then, American Superconductor says it's received contracts for a handful of wind projects, including a few in China. Its stock has more than doubled since July.
American Superconductor has traditionally made power converters that help regulate the flow of electricity between the windmill and the power grid. WindTec should buoy converter sales.
But the company has lost money for at least the past nine years. In March, it said it would cut 13% of its work force, or 37 jobs, by merging some operations. It hoped to save $4 million in a bid to get into the black.
Worldwide Interest
Pacific Growth Equities last month began covering American Superconductor with a buy rating, partly for its role in wind energy.
Pacific Growth analyst Richard Rambaldo estimates half the company's revenue will come from wind in the fiscal year that ends in March 2008.
He says governments in emerging markets around the world are encouraging local companies to start developing their own wind-power operations.
As for Maxwell Technologies, its storage devices, ultracapacitors, help windmill blades continually operate efficiently.
Pacific Growth's Horwitz says the company's products are more durable than traditional batteries. He has a buy rating on Maxwell shares.
The company received the largest order in its history in December, with an order from an unidentified wind-energy company worth roughly $14 million over approximately two years, Horwitz says. The company posted $54 million in revenue last year, up 19% from 2005.
The company, which hasn't had a profitable year since 1999, lowered sales guidance for the March quarter, saying an unidentified windmill customer was forced to delay an order. Maxwell's stock is down 11% this year.