HDWR: Headwaters (alternative energy) Message Board

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Technology Stocks : HDWR: Headwaters (alternative energy)

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From: Dennis Roth	11/12/2007 2:11:34 PM
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Headwaters Inc. (HW): Continues to look like a building products company; stay Neutral - Goldman Sachs - 11/11/07 What's changed Key takeaways from FY4Q: (1) EPS of $0.59 came in above ours and consensus estimates of $0.53 and $0.54 respectively. HW beat numbers on account of stronger than expected revenues and gross margins out of their construction materials business compared to our estimates. These numbers exclude the goodwill write-down. (2) 2008 EPS guidance given in the range of $0.95-1.35 where we were at $1.04. (3) Management indicated that they expect HCAT revenues in 2008. Implications Headwaters continues to look more like a building materials company than an alternative energy company given the lack of revenues from their alt-e projects. In our view, the main technology that has the potential to be innovative is HCAT, but unfortunately the lack of contract signings make assessing the potential of HCAT difficult. Until HW generates meaningful economics from these projects, we are reticent to give them credit in our forecasts. We maintain our Neutral rating. We are updating our FY08-FY11 EPS estimates $1.21, $0.97, $1.10 from $1.04, $0.88, $1.11 to incorporate the latest reported information. Our forecasts are not materially different than before except for slightly better near-term performance due to the construction segment forecast slightly better than before. Valuation We are updating our target price to $14 (from $16) given the lack of a commercial contract signing in the HCAT business. We derive our target price from P/E on out-year analysis discounted to the present (16X FY2012 discounted back at Ke of 14%) as well as taking into account DCF analysis. Key risks (1) If HCAT generates revenue, our forecasts may be too conservative, (2) If construction materials business gets hit harder than expected

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