In Brief: American Superconductor

AMSC is really two companies under one umbrella. The namesake division markets high temperature superconductor (HTS) cable systems. The power systems division makes products that regulate power from wind farms; designs megawatt-scale wind turbines and control systems; and produces grid-scale surge protectors, and power electronics-based voltage stabilization systems. 

Strengths

AMSC seems poised to benefit from the rapid growth of wind power around the world. Its product line had a big role in the $2 billion wind farm project built by T. Boone Pickens. More orders of this type are likely due to Obama's stimulus plan.

Its superconductor power cables can deliver up to 10 times more power than conventional copper cables and simultaneously suppress fault currents that can result in serious outages, making underground transmission lines cost-competitive with overhead lines. Underground lines reduce right-of-way, environmental, and aesthetic issues.  AMSC’s products should prove especially valuable in urban, congested areas where new right-of-ways are impossible to obtain. Its showcase project, for instance, is on Long Island.

Challenges

With global economic weakness, sales will likely be muted over the next year. Also, AMSC is heavily dependent on China with 67% of revenue from this region, much of that from a single large customer. 

Our View

The Long Island installation, the recent South Korea project, and China’s selection of AMSC as a preferred provider, reflects growing endorsement for AMSC’s product line.  China's power grid will require approximately $1.5 trillion in investments by 2030 and AMSC seems to be on the inside track.

While the company is establishing leadership in commercialization of superconductors, most of its current revenue comes from licensing its wind turbine designs to other manufacturers and selling ancillary power equipment.  Where there’s a wind turbine, there are AMSC products.  AMSC may well become the leader in the wind energy sector.

American Superconductor in the latest quarter posted its strongest financial performance to date, showing its first ever net profit.  Earnings estimates appear positive going forward.  With little or no debt financing, its financial risk is lower.