This Power Company Has Impressive Backlog

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Shares of PowerSecure International (NYSE: POWR) have taken investors on a fantastic ride this year. The Wake Forest, N.C.-based company has gone from lows near $4 per share in August to current highs near $16 per share. This remarkable run surely leaves investors wondering if now would be a good time to get out. 

A record quarter

PowerSecure is coming off of a record first quarter. Here are some of the highlights:

  • 35% year-over-year revenue growth 
  • 6% increase operating profit
  • Record $206 million backlog
In 2012, the company generated $162 million in revenue. It has been aiming to nearly double sales to $300 million by 2015 -- which it says is now achievable ahead of schedule.  
 
These recent achievements continue to underscore an emerging small company with very solid fundamentals.

POWR Revenue TTM data by YCharts

A few years back, PowerSecure changed up its business strategy. Rather than dabbling in a variety of energy services, it began to focus on just providing customers with solutions for reducing energy use. In 2011, the company successfully sold the last of its non-core businesses in the natural-gas sector.
 
This strategy-shift affected earnings for a time, as the company was making investments in infrastructure. Now that the company is a couple of years into the new plan, earnings are picking up steam. Excluding the earnings spike related to the sale of the non-core business assets, net income is up 43% over the past year.
 
The company is also in a strong financial position. PowerSecure's long-term debt is only $3.7 million compared with $18.2 million in cash on hand. In other words, this company has achieved a major business shift without sacrificing a strong balance sheet. This only further highlights CEO Sidney Hinton's leadership and the company's bright future.

Backlog

PowerSecure is touting its impressive record $206 million backlog -- a record it expects to break next quarter -- as its brightest point. PowerSecure isn't the only company flaunting recurring revenue. Both SolarCity (NASDAQ: SCTY), and SunPower (NASDAQ: SPWR) are also companies with impressive backlogs. How do they compare?

Company  Market Cap P/E Ratio Revenue Backlog
PowerSecure $290 million 66 $206 million
SolarCity $2.83 billion n/a $1.22 billion
SunPower $2.5 billion n/a $541 million

To be clear, these companies are very different. But they are similar in the sense that their mission is to save customers money on their power bills. SolarCity and SunPower do this through solar leasing. PowerSecure does this through a range of solutions, such as energy-efficient lighting, generators for peak power hours, and renewable energy.

There is also a difference in the revenue backlog itself. SolarCity and SunPower's recurring lease revenue is very long term -- over the next 20 years. In contrast, PowerSecure's backlog is mostly short term. All but $7 million is expected to come in the next couple of years, which is why the company has a forward P/E of just 18.

But even though this $206-million backlog is short term, it's not going away. The company expects to increase the backlog next quarter. It's also working to increase the long-term backlog with what at this time it's just calling a "very large contract." 

SunPower is expected to become profitable this year. Part of this is due to very favorable legislation and the tax code for solar companies. But another reason is because it manufactures its own solar panels while many other solar-leasing companies must purchase theirs. SunPower has a major opportunity with its new plant in Mexico, which could double its solar-panel production. But risks remain as this company has decent exposure in economically struggling Europe.

Though SolarCity grew quarterly revenue 21% to $30 million, it's likely years away from profitability. All resources are being poured right back into the business -- a-la-Amazon if you will -- to create a powerhouse. Consider that the company's total liabilities increased 10% in the most recent quarter, while total assets decreased 13%. 

In SolarCity's case, I'm not wishing to suggest that the company is in danger. I think it is building the business right. But near-term investors may become impatient waiting for profits to come, at which time they might not support the company's $2.8 billion valuation.

Conclusion

PowerSecure International has had a great ride so far. But the recent surge in earnings and stock price represent a solidly executed business strategy. As CEO Hinton continues to lead this company forward, I expect earnings to continue growing. It may be tempting to sell now to keep recent gains, but it seems the company has plenty of growth left in front of it.

The Motley Fool's chief investment officer has selected his No. 1 stock for this year. Find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.


Jon Quast has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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