Incorporating its proprietary continuous carbonization process, Zoltek Companies (Nasdaq: ZOLT; Market Capitalization: $1.12 billion; Recent Price: $38.23) develops and manufactures carbon fibers, high strength, high stiffness synthetic fibers that reinforce and improve the performance of composites used as the primary building materials in every day commercial products. Ten times stronger than steel and eight times aluminum’s strength, carbon fibers are much lighter than both materials – five and 1.5 times, respectively. Additionally, their fatigue properties are superior to all known metallic structures, and they are one of the most corrosion-resistant materials available, when coupled with the proper resins.
Carbon fibers can be used to customize the electrical properties of injection molding compounds, paints, and adhesives, ultimately providing the benefits of plastics with the conductivity and electrical shielding capabilities of metals. The electrical conductivity of carbon can be used to greatly enhance the cure times for adhesive applications. And combined with its ability to be configured into a semi-permeable membrane with defined mass transport properties, carbon is a superb choice for next generation fuel cell engines and serves key applications in wind power.
Zoltek has greatly evolved since its founding in 1975 as an industrial equipment and services company. The company jumped into the carbon fiber business via a 1988 acquisition, which changed its focus to high-priced, low-volume aerospace applications. But the snail-pace of business development pushed Zoltek into making a cutting-edge discovery, and a revolution in the carbon fiber business. The company’s research efforts resulted in the manufacture of carbon fibers from inexpensive, textile-type acrylic fibers, which duplicate the properties of the most common aerospace carbon fibers – at a substantially lower cost.
Today, Zoltek produces the lowest-cost carbon fibers around the globe, and is also the world leader in installed capacity, commanding a 25% market share. And the company’s strategic plans include continued rapid capacity growth.
For its fiscal second quarter 2007, ended March 31, 2007, Zoltek’s sales were strong, rising 40% to $36.7 million from $26.2 million in the year-ago quarter. Revenue growth was boosted by a combination of healthy demand and increased capacity. The company approached break-even, posting a loss of $6,000, or $0.00 per share, versus a loss of $27.7 million, or $1.31 per share, in the year-ago quarter. The move toward profitability can be directly attributed to improving gross margins, which over the trailing twelve months have improved from 23% to 29%.
The consensus analyst estimate calls for earning per share of $0.77 on revenues of $156.3 million in fiscal year 2007 and EPS of $1.49 on revenues of $245.2 million in fiscal year 2008.
Zoltek has created a solid market niche for itself with strong strategic advantages. Further, the potential growth for new applications and markets utilizing the company’s products is clearly promising and starting to materialize. On May 22, the company announced that it had expanded its long-term strategic supply agreement with Vestas Wind Systems AS, of Denmark, the world's largest producer of wind turbine generators. Under the expanded agreement, Zoltek remains the Preferred Supplier of carbon fibers to Vestas and based on current commitments and pricing for base quantities, expects to provide Vestas with over $300 million of carbon fiber and carbon fiber materials over the first five years of the agreement.