Will Capstone Turbine Recover by the Year's End?

With half of 2012 in the record books, it's important to take a look at whether the stocks that interest you can live up to their full potential. By making sure you know about a company's future plans and possible challenges, you can make a better decision about whether it's a smart investment for your portfolio.

Today, let's take a look at Capstone Turbine (Nasdaq: CPST  ) . As we saw in our look at Capstone last month, the microturbine maker has struggled so far in 2012, but it still has useful products that could give the company a boost if conditions work out right. Let's take a quick look at Capstone's prospects for the rest of the year and beyond.

Stats on Capstone Turbine

Median Target Stock Price $2.10
EPS Estimate, Year Ending March 2013 ($0.04)
EPS Estimate, Year Ending March 2014 $0.04
Expected Annual Growth, Next 5 Years 30%
Forward P/E 26.3
CAPS Rating ***

Source: Yahoo Finance.

How Capstone can power up this year
As tough as it's been for Capstone to become profitable, the company has demonstrated that it can be done, with its announcement of a winning fiscal second quarter to end 2011. Capstone expects margins to improve significantly in the coming year, and if the company can execute on better product pricing along with reductions in operating costs and warranty-related expenses, that could turn into black ink on the bottom line.

Oil and gas drillers remain Capstone's best chance at success. With Eagle Ford already a lucrative source of business for Capstone, hitting up Eagle Ford players Chesapeake Energy (NYSE: CHK  ) and EOG Resources (NYSE: EOG  ) for business makes a lot of sense. Especially with Chesapeake going through a restructuring, it may be open to new ideas to save costs. Similarly, Capstone could turn to companies with African holdings, including Total (NYSE: TOT  ) and Statoil (NYSE: STO  ) , for business, because grid-based power is less extensive throughout much of that continent.

Capstone can also count Russia as a market with big potential. Capstone sold 17 microturbines to Russian oil giant Lukoil, and given the remote locations of many oil fields in the huge country, having power on demand is a big asset.

For Capstone to have the best chance of success, it needs the energy markets to see high enough prices to justify activity in out-of-the-way locations. If it has that good fortune, then smart strategic execution could get the company's shares out of the doldrums by the end of the year.

If you like prospects for energy, let us show you another stock you should look at more closely. Read about it right here in The Motley Fool's special free report on the energy industry and its best prospects.

Click here to add Capstone Turbine to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. The Fool owns shares of Chesapeake Energy. Motley Fool newsletter services have recommended buying shares of Chesapeake Energy, Total, and Statoil. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.


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  • Report this Comment On July 06, 2012, at 12:40 PM, hanover67 wrote:

    Just for the heck of it I went to Capstone's website and read their latest 10Q. I came away with two impressions; 1) The company has really nifty technology - clean burning turbines with low maintenance requirements, and 2) they keep running out of cash as evidenced by numerous violations of the covenants in their secured credit agreements, probably the result of a very slow rise in sales that outstrips their normal operating expenses.

    I get the sense that their sales effort, reliant upon "distributors" is not very effective. So, while $1 a share is a low money risk, I don't see much in the future unless they take control of their own destiny and do a better job of finding customers.

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