The potential superstock for the week is Ameresco, Inc (AMRC). AMRC provides services and products for customers to reduce their energy con...

Weekly Superstock Scan 9 July 2018 - 13 July 2018: Ameresco, Inc (AMRC)

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The potential superstock for the week is Ameresco, Inc (AMRC). AMRC provides services and products for customers to reduce their energy consumption, lower their operating and maintenance costs and realize environmental benefits. These solutions include upgrades to a facility’s energy infrastructure, construction and operation of small-scale renewable energy plants and photovoltaic (PV) equipment.




AMRC has four reportable segments:
  • U.S. Regions
  • U.S. Federal
  • Canada
  • Non-Solar Distribution Generation - sells electricity, processed renewable gas fuel, heat or cooling, produced from renewable sources of energy, other than solar and O&M services for customer owned small-scale plants.

Technical



AMRC has been trading in a box between $11.10 and $13.20 since March this year. Since May, AMRC has been trading in an even smaller range between $11.10 and $12.65. Last week, price broke above both boxes to hit a high of $13.95 before closing at $13.48. The volume of the week was around 600 thousand shares, which is about the average volume in the past 30 weeks. However, AMRC has seen a sustained surge in trading volume since price broke out back in March 2018.

There was no news released by AMRC last week, and earnings are not due for release soon, hence the cause of the spike is unknown.

Fundamental


Including the most recent quarter, AMRC recorded 4 consecutive quarters of year-on-year EPS growth. 

Contract Wins

AMRC are not only winning more projects, but also larger and more complex projects. The average project size in their awarded backlog is $10 million compared to $7 million in the contracted backlog, reflecting the current trends in the market place. The higher frequency of these large awards sharply illustrates the effectiveness of their focus on large and more complex projects. 

Two weeks ago, AMRC and Lendlease announced a partnership to modernize more than 5,800 privatized military housing homes at Island Palm Communities in Hawaii through a $150 million energy security and modernization project to provide turnkey energy efficiency improvements and new solar energy systems.

Increasing Backlog

As a result of winning more contracts, AMRC are seeing a larger backlog. The fully contracted backlog increased y-o-y from $505.0 million to $595.6 million in March 2018 while the awarded backlog increased from $1,138.2 million to $1293.0 million in March 2018.

The increase in backlog will give more assurance of future growth in revenue and profit.

Increasing Energy Assets

Although projects form more than two-third of AMRC's revenue, it is the recurring lines of business (O&M and Assets) that provide the bulk of AMRC's profit. AMRC has been actively building on its energy assets through development and acquisitions.


As at end March, AMRC owns 210 MWe of assets, with an additional 90MWe under development. This includes the new plant in Arizona which is expected to come online during the second half of 2018 and AMRC has also executed agreements to purchase two large solar projects in Massachusetts.

Matrices
o Small float of 20 million shares with a average daily trading volume of 123,000 shares. The float is more than 160 times its average trading volume
o AMRC is trading at 14.2 times its trailing twelve months EPS.

Risk Factors

  • Unconvincing Breakout - Probably because the breakout last week was not linked with a catalyst, the breakout lacked conviction. The candle did not close on its high and its volume is average. This will reduce the probability of a follow through.
  • Increasing debt - More debt is required to finance the additional energy assets, and AMRC is expected to bring on another $100 million worth of debt for the projects in construction.




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All information in The Trader Diaries (TTD) does not constitute to investment advice or recommendation to buy, sell or hold. Readers are advised to consult their financial advisors prior to making any investment or pursuing any investment strategy. TTD will not be liable for any losses resulted from information published or shared from the blog.