If last week's IPO of Comverge (Nasdaq: COMV) is any indication, investors see lots of green in so-called "clean tech" deals. Pricing its offering a buck higher than its $15-$17 range, the company raised a cool $95.4 million. On its first day of trading, the stock spiked 24% to $22.31, and the upside may continue.
Comverge develops software and wireless systems that reduce electric utility consumption during peak times. This frees up electric capacity for utilities, saving as much as 40% compared to the cost of building and running additional gas-fired "peaking units" to handle excess demand. Comverge has more than 500 electric utility customers, including Duke Energy (NYSE: DUK) and Progress Energy (NYSE: PGN).
Comverge's key differentiator is its Virtual Peaking Capacity (VPC) program. Instead of installing the necessary systems themselves, utilities just outsource everything to Comverge. In exchange, Comverge gets revenue based on the kilowatt-hours of capacity it provides. Estimated payments for existing VPC contracts total roughly $159.6 million so far, and the contracts can last anywhere from three to 20 years.
Over the past year, Comverge's total revenues rose 45% to $33.8 million, though the company sustained a net loss of $6.1 million. Keep in mind that the VPC programs require large up-front expenses. Assuming revenues continue to ramp, Comverge should cross over into profitability over the next couple of years.
Comverge faces a variety of competitors, including Cooper Power Systems, ESCO Technologies (NYSE: ESE), EnerNOC, Regency Technologies, and Honeywell (NYSE: HON). However, Comverge has the first-mover advantage with its VPC program; no other competitor has entered this particular market yet.
Current megatrends also favor Comverge. According to the Pacific Northwest National Laboratory, electricity demand is growing at 20% annually, but capacity is increasing at only 5%. That's why Comverge's offerings are so attractive. They provide more capacity at a lower cost, without generating harmful emissions. That certainly looks like a recipe for strong long-term growth.
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Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares mentioned in this article. He is currently ranked 2,719 out of 25,386 in CAPS.
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