The electrical equipment industry is surging...
Posted: Sat Jan 05, 2008 2:56 am
Investor's Business Daily
Getting Power To The People
Friday January 4, 5:51 pm ET
Patrick Seitz
The electrical equipment industry is surging.
Increasing demand for new electric power and the gear to distribute it are stimulating the industry, as is the need to upgrade aging infrastructure.
Industrialized countries are upgrading their electrical grids and transmission equipment while adding new power sources, such as wind and nuclear plants, to the grid.
ADVERTISEMENT
Developing countries such as China and India are trying to build up their infrastructures to meet the demands of industry and their growing populations.
1. Business
IBD's electrical equipment industry group includes stocks from 35 companies. All but five are based in the U.S.
The group is a diverse set. It includes companies that make gear for transmitting and distributing electricity, companies involved in backup and standby power supplies, and those involved in making electricity distribution more efficient. Some companies in the group specialize in batteries or motors.
The largest company in the group is ABB (NYSE:ABB - News), a Swiss manufacturer of automation and power products and systems used in industrial and utility processes.
ABB said Dec. 18 that it won orders worth $440 million from the State Grid Corporation of China and other partners to provide new ultrahigh-voltage technology for the world's longest power transmission link.
The power superhighway, running 1,240 miles from western China to the highly industrialized coastal area in the east, will have a capacity of 6,400 megawatts. That is enough to meet the needs of about 31 million people in China. The link from the Xiangjiaba hydropower plant to Shanghai is scheduled for completion in 2011.
Much of what electrical equipment companies supply is standardized hardware, so they have to generate business by offering high quality service and reliability. Having a good reputation is critical, analysts say.
"It's a relationship business," said John Franzreb, an analyst with Sidoti & Co.
Name Of The Game: Because the electrical gear business is a commodity business, companies have to focus more on their relationships with customers and meeting their expectations.
2. Market
Customers in the electrical equipment group include utility companies, telecommunications and tech companies needing backup power, and industries that rely on batteries to power machines such as forklifts.
Top-performing stocks in the group lately have included American Superconductor (NasdaqGM:AMSC - News), Harbin Electric (NasdaqGM:HRBN - News) and Raser Technologies (NYSEArca:RZ - News).
American Superconductor of Westborough, Mass., serves the utility, industrial and wind power markets with a host of energy technologies based on proprietary high temperature superconductor wires and power electronic systems.
China-based Harbin makes motors and controller systems for applications ranging from oil pumps to automobiles.
And Raser, based in Provo, Utah, develops high-performance electric motor and controller technology for clean, renewable power. It's involved in geothermal energy and hybrid and electric vehicles.
3. Climate
Shortcomings of power networks in developed countries have led to calls for improved infrastructure to prevent power outages and to meet growing demands for electricity.
Some industries are looking for better backup and standby power systems to keep running in the event of a power outage.
Telecommunications companies are big customers for reserve backup power systems, which often use lead-acid batteries. EnerSys (NYSE:ENS - News) and C&D Technologies (NYSE:CHP - News) are major suppliers of systems using lead-acid batteries. (See related story, this page.)
The Federal Communications Commission Oct. 2 mandated that the amount of backup power in cellular communications towers be doubled to eight hours within two years.
Demand for new sources of power has led to the need for more gear to connect those plants to the electrical grid. These new power plants are often green or environmentally friendly facilities that tap wind and geothermal power sources.
Wind power is a common theme of a lot of new business. In September, ABB won an order worth more than $400 million from a German utility firm to supply the power equipment that will connect the world's largest offshore wind farm to the German grid.
The increased demand for electricity is necessitating the upgrading and buildout of power transmission grids in industrialized countries, says Stuart Bush, an analyst with RBC Capital Markets. Developing countries are installing new electricity grids, he says.
The focus has shifted to electrical efficiency while new systems are being put in place, he says.
A number of companies have products to save power at the point 15f use or have technologies for making the electrical grid more efficient.
4. Technology
The electrical equipment industry sells mostly tried and true, standardized hardware. But some new technologies and approaches have come to the fore.
American Superconductor makes wires that can transmit much more power than traditional copper wires. The mass rollout of superconducting wire is still a couple of years away, but holds tremendous promise for the company and industry, says Walter Nasdeo, an analyst with Ardour Capital.
Comverge (NasdaqGM:COMV - News) of East Hanover, N.J., has taken a new approach to the electricity market with products that can significantly reduce peak electricity costs and increase grid reliability.
Its "smart megawatts" technology is widespread. It's used by over 500 U.S. utility clients. The company has installed 4.5 million devices.
Describing itself as a leading "clean energy" company, Comverge has grown through acquisitions since its IPO in April.
Comverge bought Enerwise Global Technologies in July to create the largest demand response company in the industry. And in October, Comverge picked up Public Energy Solutions.
5. Outlook
The electrical equipment industry is in the early to mid-stage of the current utility market buying cycle, analysts say.
"We're looking at a five- to seven-year cycle at this point 14d we're probably in year two or three," Franzreb says. Historically, cycles have lasted three years, but companies still have major backlogs, he says.
"You're reading about new jobs going on all over the place," Franzreb said. Those jobs are for new capacity as well as replacements and upgrades of electrical gear.
Just look at ABB: in the last three months, it has announced major power system deals in Germany, India, Namibia, Angola and China.
The outlook is bullish for the industry because it takes a long time for companies to ramp up electricity supplies, Bush says.
"Fundamentally, it boils down to the fact that people continue to use more electricity," Bush said. "That's both developing countries and industrial countries."
Think about your own home, he says. Each person is using more electricity today than ever with more PCs, big-screen TVs and consumer electronics, he says.
Upside: Electricity demand is forecast to rise, necessitating more electrical equipment to transmit, distribute and store electricity.
Developed countries are replacing their old electrical grid infrastructure with high-capacity, more reliable equipment, as well as better backup systems. Developing countries are playing catch-up, putting in new infrastructure for booming industrial and residential areas.
Risks: Competition is intense in the electrical equipment business since much of the gear is standardized.
---------------------------------------------------------------------------------------------------
I'm in agreement with the worldwide build out of electric - this is a good play
I like ABB - but their 1 yr. chart is broken.
The 3 yr. weekly chart puts a buy around $26
Getting Power To The People
Friday January 4, 5:51 pm ET
Patrick Seitz
The electrical equipment industry is surging.
Increasing demand for new electric power and the gear to distribute it are stimulating the industry, as is the need to upgrade aging infrastructure.
Industrialized countries are upgrading their electrical grids and transmission equipment while adding new power sources, such as wind and nuclear plants, to the grid.
ADVERTISEMENT
Developing countries such as China and India are trying to build up their infrastructures to meet the demands of industry and their growing populations.
1. Business
IBD's electrical equipment industry group includes stocks from 35 companies. All but five are based in the U.S.
The group is a diverse set. It includes companies that make gear for transmitting and distributing electricity, companies involved in backup and standby power supplies, and those involved in making electricity distribution more efficient. Some companies in the group specialize in batteries or motors.
The largest company in the group is ABB (NYSE:ABB - News), a Swiss manufacturer of automation and power products and systems used in industrial and utility processes.
ABB said Dec. 18 that it won orders worth $440 million from the State Grid Corporation of China and other partners to provide new ultrahigh-voltage technology for the world's longest power transmission link.
The power superhighway, running 1,240 miles from western China to the highly industrialized coastal area in the east, will have a capacity of 6,400 megawatts. That is enough to meet the needs of about 31 million people in China. The link from the Xiangjiaba hydropower plant to Shanghai is scheduled for completion in 2011.
Much of what electrical equipment companies supply is standardized hardware, so they have to generate business by offering high quality service and reliability. Having a good reputation is critical, analysts say.
"It's a relationship business," said John Franzreb, an analyst with Sidoti & Co.
Name Of The Game: Because the electrical gear business is a commodity business, companies have to focus more on their relationships with customers and meeting their expectations.
2. Market
Customers in the electrical equipment group include utility companies, telecommunications and tech companies needing backup power, and industries that rely on batteries to power machines such as forklifts.
Top-performing stocks in the group lately have included American Superconductor (NasdaqGM:AMSC - News), Harbin Electric (NasdaqGM:HRBN - News) and Raser Technologies (NYSEArca:RZ - News).
American Superconductor of Westborough, Mass., serves the utility, industrial and wind power markets with a host of energy technologies based on proprietary high temperature superconductor wires and power electronic systems.
China-based Harbin makes motors and controller systems for applications ranging from oil pumps to automobiles.
And Raser, based in Provo, Utah, develops high-performance electric motor and controller technology for clean, renewable power. It's involved in geothermal energy and hybrid and electric vehicles.
3. Climate
Shortcomings of power networks in developed countries have led to calls for improved infrastructure to prevent power outages and to meet growing demands for electricity.
Some industries are looking for better backup and standby power systems to keep running in the event of a power outage.
Telecommunications companies are big customers for reserve backup power systems, which often use lead-acid batteries. EnerSys (NYSE:ENS - News) and C&D Technologies (NYSE:CHP - News) are major suppliers of systems using lead-acid batteries. (See related story, this page.)
The Federal Communications Commission Oct. 2 mandated that the amount of backup power in cellular communications towers be doubled to eight hours within two years.
Demand for new sources of power has led to the need for more gear to connect those plants to the electrical grid. These new power plants are often green or environmentally friendly facilities that tap wind and geothermal power sources.
Wind power is a common theme of a lot of new business. In September, ABB won an order worth more than $400 million from a German utility firm to supply the power equipment that will connect the world's largest offshore wind farm to the German grid.
The increased demand for electricity is necessitating the upgrading and buildout of power transmission grids in industrialized countries, says Stuart Bush, an analyst with RBC Capital Markets. Developing countries are installing new electricity grids, he says.
The focus has shifted to electrical efficiency while new systems are being put in place, he says.
A number of companies have products to save power at the point 15f use or have technologies for making the electrical grid more efficient.
4. Technology
The electrical equipment industry sells mostly tried and true, standardized hardware. But some new technologies and approaches have come to the fore.
American Superconductor makes wires that can transmit much more power than traditional copper wires. The mass rollout of superconducting wire is still a couple of years away, but holds tremendous promise for the company and industry, says Walter Nasdeo, an analyst with Ardour Capital.
Comverge (NasdaqGM:COMV - News) of East Hanover, N.J., has taken a new approach to the electricity market with products that can significantly reduce peak electricity costs and increase grid reliability.
Its "smart megawatts" technology is widespread. It's used by over 500 U.S. utility clients. The company has installed 4.5 million devices.
Describing itself as a leading "clean energy" company, Comverge has grown through acquisitions since its IPO in April.
Comverge bought Enerwise Global Technologies in July to create the largest demand response company in the industry. And in October, Comverge picked up Public Energy Solutions.
5. Outlook
The electrical equipment industry is in the early to mid-stage of the current utility market buying cycle, analysts say.
"We're looking at a five- to seven-year cycle at this point 14d we're probably in year two or three," Franzreb says. Historically, cycles have lasted three years, but companies still have major backlogs, he says.
"You're reading about new jobs going on all over the place," Franzreb said. Those jobs are for new capacity as well as replacements and upgrades of electrical gear.
Just look at ABB: in the last three months, it has announced major power system deals in Germany, India, Namibia, Angola and China.
The outlook is bullish for the industry because it takes a long time for companies to ramp up electricity supplies, Bush says.
"Fundamentally, it boils down to the fact that people continue to use more electricity," Bush said. "That's both developing countries and industrial countries."
Think about your own home, he says. Each person is using more electricity today than ever with more PCs, big-screen TVs and consumer electronics, he says.
Upside: Electricity demand is forecast to rise, necessitating more electrical equipment to transmit, distribute and store electricity.
Developed countries are replacing their old electrical grid infrastructure with high-capacity, more reliable equipment, as well as better backup systems. Developing countries are playing catch-up, putting in new infrastructure for booming industrial and residential areas.
Risks: Competition is intense in the electrical equipment business since much of the gear is standardized.
---------------------------------------------------------------------------------------------------
I'm in agreement with the worldwide build out of electric - this is a good play
I like ABB - but their 1 yr. chart is broken.
The 3 yr. weekly chart puts a buy around $26