Traders Bracing for Capstone Turbine Earnings Call (CPST)

Capstone Turbine Corporation (NASDAQ: CPST) is set to report earnings this Thursday, June 12, 2008 after the market closes and a conference call will follow at 4:45 PM EST. 

This stock is still extremely thin in analyst coverage and no bulge bracket firms cover this stock (yet) because of its size.  First Call has estimates for Q1-2008 pegged at -$0.05 EPS on $9.27 million in revenues.  As a result of the small number of estimates, you should rely more on the overall feel and sound pertaining to long-term growth goals perhaps more than the actual firm numbers.  Capstone is still at the emerging revenue stages of its business and its business revenues and its stock have both been plagued by vast irregularity until the last 7 months.

As far as if the company will give guidance, First Call has estimates for Q2-2008 at -$0.05 EPS on $9.44 million in revenues; and fiscal 2008 estimates are -$0.24 EPS on $31.5 million in revenues.  Be advised that we think the annual estimates are not updated and are likely more "carryover numbers" that do not reflect the reality of many new orders that it has won.  Most of the recent orders are likely to be noted more as "backlog" and may not show up until later this year or even Fiscal-2009 as revenues on the books.

As the field of analysts is literally less than a handful, the $4.50 to $5.00 average target is also of little use here.  The 52-week trading range is $0.91 to $4.01 and its market cap is now $503 million after the large run that it has seen.  This was higher just last week, but traders have been lightening up ahead of earnings after such a huge price move.

This was our number one pick for our weekly "10 Stocks Under $10" newsletter from back in late 2007 at $1.21.  We have never removed it from our list even after a 200% gain, and the only selling we ever modeled was around $3.00 to take the original investment amount off the table and to let the rest ride.  We have other alternative energy picks in this sector that have not run 200%.

After a 200% run up in 7-months it would not at all be out of the ordinary to see selling regardless of the news.  But if that occurs on strong numbers it would likely be short-lived.  Now that Capstone has a $500+ million market cap it can actually come into the screens for some of the larger investment banks and bulge bracket brokerage firm analysts to initiate coverage on the stock.  We believe that is imminent.

The analyst that has been most dead-on here is Lazard Caital Markets’ Sanjay Shrestha and we’ll be watching for his comments on Tuesday or Wednesday.  Shrestha has a target of $6.00 per share, significantly higher than when he first made his call.

The company also saw a significant gain in short selling after such a huge run.  Its May 30 short interest just came out and was listed as 15,602,150 shares, up about 21% from the may 15 reading of 12,860,110 shares listed as short.

Lastly, we would like to note thattraders have been hiding in longer-dated stock options in this stock for their speculative play on the stock.  You have to go out to July to see any real open interest but the July $5 Calls had 3,399 contracts in the open interest.  The January 2009 CALLs are more active than any though, and the open interest is rather large there:
$2.50 Calls 15,837 contracts
$5.00 Calls 10,060 contracts
$7.50 Calls 10,307 contracts

This one has enjoyed a huge run and its low share price makes the interest in this one that much more.

Jon C. Ogg
June 11, 2008