American Superconductor Corporation (AMSC) signed a definitive agreement to acquire Finnish power technologies company, The Switch Engineering Oy, for approximately $265 million. The transaction is expected to be completed by August 31, 2011.
American Superconductor expects the acquisition to be revenue accretive immediately and help it to cross the billion dollar mark in annual revenues. The Switch Engineering sells both power converter systems and permanent magnet generators to wind turbine manufacturers in China, Europe, Korea and the U.S. As a result this acquisition will diversify and enlarge the company’s customer base and channels to market.
American Superconductor’s revenue growth largely depends on its customer Sinovel, China’s largest and the world’s third largest wind turbine manufacturer. Sinovel contributed approximately 75% of its total revenue for the nine month period ending December 31, 2010.
Until the company is able to add new customers to reduce its reliance on Sinovel, there exists a significant risk from price renegotiations on existing contracts. However, the scenario would change with the acquisition as China’s three largest wind turbine manufacturers (Sinovel, Goldwind and Dongfang) will be on the customer list then.
Apart from that, the Finnish firm’s western customers like General Electric Company (GE) would reduce its dependence on China and drive its top line growth.
The acquisition will also enlarge the product portfolio of American Superconductor with the addition of proprietary permanent magnet generators (PMG). PMG are a new class of powerful generators that are utilized in several geared and direct drive wind turbines presently.
These PMG systems, which already are being utilized by several companies in Europe, the U.S. and Asia, will increase the potential value per MW of wind power from the company’s turbines.
American Superconductor’s growth potential is based on its strong Chinese exposure, and growing international operations. American Superconductor’s alliance with Dongfang, to that end, will aid growth. Also, looking forward the company is on the fast track to growth, focusing on the rapidly growing areas of wind energy and smart grid infrastructure technology.
American Superconductor’s earnings of 33 cents per share in third-quarter fiscal 2010 ending December 31, 2010, were 6 cents ahead of the Zacks Consensus Estimate and a substantial 21 cents above the year-ago earnings.
We maintain our long-term Neutral recommendation on American Superconductor. The quantitative Zacks #3 Rank (short term Hold rating) for the company indicates no clear directional pressure on the stock over the near term.
Devens, Massachusetts-based American Superconductor offers an array of proprietary technologies and solutions spanning the electric power infrastructure, which includes generation delivery and end-use applications. The company is a leader in megawatt-scale wind turbine designs and electrical control systems.
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