Capstone Turbine Corporation Earnings: Will the Red Ink Finally End?

On Thursday, Capstone Turbine (CPST) will release its quarterly report, and investors have gone through a real roller-coaster ride with their microturbine-maker's share price over the past few months. Even as fuel-cell companies Plug Power (PLUG -1.25%) and FuelCell Energy (FCEL -1.98%) have received a lot of attention from investors lately, Capstone Turbine finally looks ready to break even and become profitable in the not-too-distant future.

Capstone Turbine has gone for years without managing to make the most of the potential of its microturbines, which allow customers to produce power in areas where easy access to the electrical grid and other power sources isn't available. In the past, brief periods of optimism have inevitably given way to the harsh realities of cheaper power sources, with Capstone largely able to appeal only to a small set of niche users. Now, though, Capstone has started to gain traction as Plug Power, FuelCell Energy, and other companies reveal the utility of power options beyond the grid. Let's take an early look at what's been happening with Capstone Turbine over the past quarter and what we're likely to see in its report.

Source: Capstone Turbine.

Stats on Capstone Turbine

Source: Yahoo! Finance.

Where will Capstone Turbine earnings go?
Investors have had to rein in their enthusiasm over Capstone Turbine earnings in recent months, giving up initial estimates for a break-even March quarter and retreating from calls for a small profit for fiscal 2015. The stock has fallen almost 12% since early March and has given up even larger gains from later in that month.

Capstone Turbine's fiscal third-quarter earnings report in February failed to deliver on the expectations that bullish investors had for the microturbine maker. Sales rose 11%, but most shareholders had expected growth to come in closer to 20%. Despite a rise in backlogs and the expressed view of Capstone's management team that the company could go cash-flow neutral in the near future, Capstone still lost money during the quarter, and even rising gross margins haven't resolved that fundamental problem yet.

Source: Capstone Turbine.

But a rush of new orders helped push Capstone stock higher. In March, Capstone sold 2.6 megawatts' worth of production capacity to a pair of hospitals in Southern California. Later in the month, Capstone Turbine sold 50 of its C65 microturbines to users in the southwestern U.S., including the Eagle Ford and Permian Basin fields. That's similar to the trend that Plug Power has had with fuel cells, pulling FuelCell Energy and other fuel-cell-related stocks higher as well. Other subsequent orders included almost four megawatts from Marcellus and Utica shale players. Given how important it is to bring power to out-of-the-way shale oil and gas plays, Capstone Turbine has rightly focused on the energy exploration and production industry as a key customer for its microturbines.

Unfortunately, it looks as though Capstone Turbine won't turn the corner this time around. In early May, Capstone revealed that it expected its March-quarter revenue to fall from the previous quarter's sales, with cash balances falling short of where the company had hoped to be.

In addition, Capstone Turbine has been its own worst enemy in many ways, as it has periodically needed to sell stock at inopportune times in order to finance its operations. In early May, Capstone sold more than 18.8 million shares at just $1.70 per share, well off its March highs, just to raise $30 million. Plug Power has similarly suffered when it has done dilutive share offerings as well, and until Capstone can become consistently profitable, future sales are inevitable.

In the Capstone earnings report, watch to see if the company does better than its stock-offering prospectus had suggested. With so much potential, Capstone Turbine really needs to push forward and make better use of its opportunity as a microturbine specialist before it's too late to capitalize.

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