Lazard Calls For Capstone Turbine To Double (CPST)

Shares of Capstone Turbine Corp. (NASDAQ:CPST) are up in early trading after the open, although not as much as one might suspect, on a key analyst call.  Sanjay Shrestha, Managing Director and Senior Analyst, Alternative Energy & Industrials at Lazard Capital Markets, has initiated coverage of CPST with a Buy rating and a $2.50 target.  Normally we might not even cover a stock with a $1.28 price, but this analyst has been quite insightful in alternative energy stocks and the price target of $2.50 is roughly a call for the stock to double.

Shrestha believes this is a turnaround story and represents an attractive way to invest in the expected growth of the distributed generation (DG) market.  Shrestha adds, "We expect significant growth in distributed generation driven by increasing electric demand, coupled with an aging transmission and distribution network and an increasing need for power quality and reliability….. The company appears to be gaining sales traction in a number of key markets and has successfully rebuilt its OEM and distributor network, which we believe will help propel further sales."

"Our $2.50 price target reflects a 25x multiple on our 2012 EPS estimate of $0.20 discounted back at 25% for three years. We believe it is important to look at a 2012 earnings scenario given the company’s growth trajectory and market penetration."

Right after the open, shares of Capstone are trading up almost 2% at $1.26, but shares were at $1.28 earlier.  It only trades about 2 million shares per average daily volume and its 52-week trading range is $0.75 to $1.65.  Even if it is a $1.00+ stock, a call for shares to double is at least one to watch.

Jon C. Ogg
November 6, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.