Westport Innovations: Flat Future

 | Aug 21, 2013 | 5:00 PM EDT  | Comments
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Stock quotes in this article:

wprt

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cmi

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fsys

Westport Innovations (WPRT) is an alternative fuel technology company focusing on development and commercialization of engines that run on natural gas. The company operates through four segments: Westport Heavy Duty, Westport Light Duty, Cummins Westport, its joint venture with Cummins (CMI), and Weichai Westport. Westport recently reported that it will help in the manufacture of a Ford-150 truck that will include its Westport WiNG Power System natural gas engine. It expects to begin shipping the trucks in early 2014.

Westport has a smaller market capitalization of $1.57 billion and does not pay a dividend. For the quarter ended June 30, Westport reported revenue of $34.9 million compared with $49.1 million a year earlier. There was a net loss of $33.9 million, at 61 cents per share compared with a loss of $6.1 million or 11 cents per share a year ago.

Westport is indirectly impacted by natural gas prices, as well as oil prices. Higher oil prices and continued low natural gas prices ostensibly fuel demand for the company's engines. Natural gas hit a recent peak at $4.4 per 1,000 cubic feet in early May, and has since come back down to $3.4. Light sweet crude is currently trading around $107.5 a barrel. The more direct issue for Westport is the continuing development of the natural gas delivery infrastructure. Although there are great strides being made in the infrastructure roll out, it is still has a ways to go. The necessary infrastructure, combined with the uncertainty of energy commodity prices, are very clear risks for Westport.

Hedge funds have taken positions in Westport. As of the end of March, John Griffin's Blue Ridge Capital owned 304,278 shares, while George Soros and Soros Fund Management owned 184,387 shares. As a small cap stock, investors should take notice of the prominent funds that have a position in the Company. We have found that the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year.

Westport has been trading in a fairly narrow band since the first of the year. The stock reached a 52-week high of $39.17 on Aug. 17, 2012, and a 52-week low of $23.01 on Nov. 11, 2012. A multi-year high of $50.19 was reached in March 2012. The 50-day average trading volume is near 850k. The chart shows a significant line of support at $27.50, but the price recently dropped below that level. Below that level, the next line of support appears to be around $26.50 to $26.00. Other than a breakout to around $35 in early July, the stock has been essentially stuck in a rut within that band. There were 10.48 million shares being sold short as of the end of July out of a float of 45.38 million shares, for a fairly high short float of 23.10%.

Westport's main competitor is Fuel Systems Solutions (FSYS). Fuel System has a smaller market cap of $414 million. Its stock has fared better recently, up 40.31% year to date and nearly 10% in the last month. The shares have a much smaller short float of 6.13%, as compared to Westport. Fuel Systems reported second quarter revenue of $111.10 million, which beat expectations. Sales rose 2%. The stock popped on the beat, but has since drifted back down.

The flat trading in Westport shows no sign of changing in the near term. The blip to $35 for shares in early June was not sustained, and has since drifted back down. Absent some major catalyst of news for Westport, or the industry as a whole, the potential for share growth appears minimal at this point. In the alternative, shares of Fuel Systems appear to have greater volatility, which could play as a move up or down. Westport appears like it will continue in a holding pattern for the time being.

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