Last year was a breakout year for CREG as revenue jumped from $1.2 million to $63.2 million and EPS leaped from $0.07 to $0.29 and should record $151M in sales in 2014. The company has 2 new, major wins in the past two weeks alone totaling over $112 million. We are raising our EPS estimate for 2014 from $0.50 to $0.59 based upon higher operating profitability. At current levels, CREG trades at a paltry 6.2x our FY14 EPS estimate. Meanwhile, our new target of $7.90 reflects a reasonable 13x multiple on our projected EPS.
Download Report in PDF Or Scroll down to read the complete report below.
The View from 30,000 Feet
With a first-mover advantage, China Recycling Energy Corp. is poised to dominate the renewable energy industry in China. The Chinese government has adopted policies to encourage the use of recycling technologies and renewable energy resources which are viewed as critical growth market due to intensified environmental concerns and rising energy costs. CREG provides the initial capex investment for the customer in exchange for a long-term production agreement with attractive returns on investment in 3-5 years thereby enabling customers to improve energy efficiency and reduce emissions, resulting in long-term recurring revenue via a sales-type leasing model. The Company’s systems recover energy in the form of pressure, heat and gas and convert it into electricity. CREG’s power systems recover previously wasted, cost free byproducts such as heat, pressure, steam, and other residuals generated during industrial production processes.
Figures I and II, taken from the Company’s recent financials press release, illustrate the Company’s great future visibility from which we derive our financial projections.
As of December 31, 2013, the future minimum rentals to be received on non-cancelable sales-type leases by years are as follows:
CREG is very profitable with payback of its projects on average of 3-5 years. As noted in our projected income statement below, our FY14E forecasts assume $151M in revenue and $0.59 in EPS, up from an original $0.50. A nearly $5 million rise in our operating income estimate has driven the jump in our EPS projection. We plan to break out financial projections on a quarterly basis for 2014 and initiate a preliminary FY2015 annual forecast following the release of 1Q14 during the first half of this year. At current levels, CREG trades at a paltry 6.2x our FY14 EPS estimate. Meanwhile, our new target of $7.90 reflects a reasonable 13x multiple on our projected EPS. Thus, we believe that this sleeper stock’s current price is a great entry point for new investors as the stock has sold off since reaching a new 52-week high. We continue to rate these shares Speculative Buy.
Recent Trading History For CREG
You Might Also Like
Senior Analyst: Robert Goldman
Rob Goldman founded Goldman Small Cap Research in 2009 and has over 20 years of investment and company research experience as a senior research analyst and as a portfolio and mutual fund manager. During his tenure as a sell side analyst, Rob was a senior member of Piper Jaffray's Technology and Communications teams. Prior to joining Piper, Rob led Josephthal & Co.'s Washington-based Emerging Growth Research Group. In addition to his sell-side experience Rob served as Chief Investment Officer of a boutique investment management firm and Blue and White Investment Management, where he managed Small Cap Growth portfolios and The Blue and White Fund.
I, Robert Goldman, hereby certify that the view expressed in this research report accurately reflect my personal views about the subject securities and issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the recommendations or views expressed in this research report.
This Opportunity Research report was prepared for informational purposes only. Goldman Small Cap Research, (a division of Two Triangle Consulting Group, LLC) produces research via two formats: Goldman Select Research and Goldman Opportunity Research. The Select product reflects the Firm’s internally generated stock ideas while the Opportunity product reflects sponsored research reports. It is important to note that while we may track performance separately, we utilize the same coverage criteria in determining coverage of all stocks in both research formats. While stocks in the Opportunity format may have a higher risk profile, they typically offer greater upside as well. Goldman Small Cap Research has not been compensated for this research update. In late 2013, Goldman Small Cap Research was compensated by a third party in the amount of $5,000 for a research report. All information contained in this report was provided by the Company via filings, press releases, presentations, and our own due diligence. Our analysts are responsible only to the public, and are paid in advance to eliminate pecuniary interests, retain editorial control, and ensure independence. Analysts are compensated on a per report basis and not on the basis of his/her recommendations.
Goldman Small Cap Research is not affiliated in any way with Goldman Sachs & Co.
The information used and statements of fact made have been obtained from sources considered reliable but we neither guarantee nor represent the completeness or accuracy. Goldman Small Cap Research did not make an independent investigation or inquiry as to the accuracy of any information provided by the Company, or other firms. Goldman Small Cap Research relied solely upon information provided by the Company through its filings, press releases, presentations, and through its own internal due diligence for accuracy and completeness. Such information and the opinions expressed are subject to change without notice. A Goldman Small Cap Research report or note is not intended as an offering, recommendation, or a solicitation of an offer to buy or sell the securities mentioned or discussed.
This report does not take into account the investment objectives, financial situation, or particular needs of any particular person. This report does not provide all information material to an investor’s decision about whether or not to make any investment. Any discussion of risks in this presentation is not a disclosure of all risks or a complete discussion of the risks mentioned. Neither Goldman Small Cap Research, nor its parent, is registered as a securities broker-dealer or an investment adviser with FINRA, the U.S. Securities and Exchange Commission or with any state securities regulatory authority.
ALL INFORMATION IN THIS REPORT IS PROVIDED “AS IS” WITHOUT WARRANTIES, EXPRESSED OR IMPLIED, OR REPRESENTATIONS OF ANY KIND. TO THE FULLEST EXTENT PERMISSIBLE UNDER APPLICABLE LAW, TWO TRIANGLE CONSULTING GROUP, LLC WILL NOT BE LIABLE FOR THE QUALITY, ACCURACY, COMPLETENESS, RELIABILITY OR TIMELINESS OF THIS INFORMATION, OR FOR ANY DIRECT, INDIRECT, CONSEQUENTIAL, INCIDENTAL, SPECIAL OR PUNITIVE DAMAGES THAT MAY ARISE OUT OF THE USE OF THIS INFORMATION BY YOU OR ANYONE ELSE (INCLUDING, BUT NOT LIMITED TO, LOST PROFITS, LOSS OF OPPORTUNITIES, TRADING LOSSES, AND DAMAGES THAT MAY RESULT FROM ANY INACCURACY OR INCOMPLETENESS OF THIS INFORMATION). TO THE FULLEST EXTENT PERMITTED BY LAW, TWO TRIANGLE CONSULTING GROUP, LLC WILL NOT BE LIABLE TO YOU OR ANYONE ELSE UNDER ANY TORT, CONTRACT, NEGLIGENCE, STRICT LIABILITY, PRODUCTS LIABILITY, OR OTHER THEORY WITH RESPECT TO THIS PRESENTATION OF INFORMATION.
For more information, visit our Disclaimer: www.goldmanresearch.com