ENER Still A Speculative Buy

We remain optimistic about Energy Conversion Devices, Inc’’s (ENER) long-term potential success in the high growth alternative energy industry, given increased activity in solar power projects. Looking forward, the story will continue with geographically diversified sales pipeline touching $1.8 billion, intended expansion to 1GW by 2012, reducing cost per watt, committed supply agreements and falling material cost through expansion of supplier base.

Nevertheless, we note the stock’s high volatility, pending sale of its Cobasys joint venture, higher pre-production costs, and a history of EPS losses till Q2′08, without meaningful valuation metrics, collectively show potential for moderate-to-high returns yet with high risk. Accordingly, we maintain a speculative Buy recommendation on ENER common stock with a six-month target price of $85, representing an 11% upside potential.

Looking ahead through the company’’s current fiscal year 2009, ENER is expected to maintain its bottomline profitability achieved in the last two quarters. Media reports suggest General Motors Corp. (GM) is close to acquiring ENER’s proprietary nickel metal hydride (NiMH) battery system solutions JV, Cobasys. The company has also entered into a patent license agreement in connection with its proprietary NiMH battery technology with Shenzhen Grepow Battery Co., Ltd. of China.

Additionally, in the second quarter of fiscal 2008, the company entered into an agreement to supply UNI-SOLAR laminates, which includes a 21.15 MW multiple-year supply agreement with Enfinity Management, a 17 MW supply agreement with SunEdison, and several sales agreements in South Korea including a take-or-pay commitment from AirTec for 25 MW in 2008 and 2009.

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