Echelon Corporation (ELON) provides smart energy control solutions on both the hardware and software side, and although current revenue remains flattish due to the company’s exposure to the U.S. and Europe, revenue is expected to grow thanks to exposure to emerging markets, says Pavel Molchanov, Analyst at Raymond James & Associates, Inc.
“The good news is that Echelon has opportunities in two of the biggest emerging markets, China and Brazil. In China, Echelon has a joint venture with a smart meter company called Holley, and in Brazil it has a joint venture with a smart meter company called ELO. Both of these opportunities are icing on the cake. In other words, I would look at it as pure optionality, because deployments in China and Brazil have not even begun yet on a commercial scale,” Molchanov said.
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Molchanov says Echelon stock currently does not seem to price the future growth opportunities for this energy-efficiency company, providing investors with an opportunity to buy shares at a reasonable price.
“Over the next 12 months, I would expect to see China and Brazil become much more meaningful revenue contributors to Echelon, and in the meantime, the stock is trading just above book value. Book value is $1.75 a share; the stock is at about $2.30. And it’s also a company where cash on hand, net of debt, is almost half of market cap. So the market is pricing in very little, if any, future revenue growth for Echelon, and that’s why I think currently, with the stock down year to date, the entry point looks very interesting,” Molchanov said.
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