Raising EPS and Price Target
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.
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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
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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.
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