In the anticipation of the change-over in the US administration that would support new cleaner energy, any stock related to clean energy has been getting a boost. You’ve no doubt heard enough about Tesla ( TSLA ) and the multitude of electric vehicle companies being traded. Solar has also gotten a tremendous amount of attention. But there is more to clean energy than these two categories. Clean electric energy is made up of Wind, Solar, Storage and Transmission companies.
TPI Composites (TPIC) has been positioning itself for two key clean energy trends. First it has established itself as a specialist in producing light-weight composite materials used to create wind blades for wind turbine OEMs. Second, its diversifying its business by using the same methods to product lightweight, but very strong, body materials for electric buses, trucks and cars.
Lightweight materials is crucial to bring down the Levelized Cost of Energy for wind turbines. This why OEMs of turbines look to companies like TPI to produce lightweight wind blades. It’s also important to have lightweight materials for electric vehicles to reduce weight, improve efficiency and while also providing more room for additional batteries. All of that extends the range and reduces the cost of the vehicles.
TPI has a proprietary method for combining a vacuum-assisted resign transfer process with fiber reinforcements and core materials to produce structurally strong by very light weight bodies. Those bodies could be the wind blade, or the body of an electric vehicle. Their manufacturing process is modular in that they can quickly change manufacturing lines to accommodate new specifications for OEM turbines.
That results in them getting long-term commitments from OEMs because they can respond to product changes as necessary and not be locked into the original contracted design. The long-term commitments allows to TPIC to efficiently plan capacity and add new manufacturing lines only when necessary.
The COVID pandemic did impact the industry as well as TPI in the first half of 2020. However in Q3, TPI noted that the pandemic no longer had an impact and you can see it in their quarterly results. What you are seeing actually is a quarter where capacity is utilized fully without the costs of new expansion
- Only Independent Blade Manufacturer with a Global Footprint
- 13 manufacturing facilities with ~6 million square feet in five countries
- Growth primarily funded through cash flow from operations
(in 2020, TPI did raise capital thru new debt due to pandemic impact , but in the future they intend to return to funding via cash flow)
- Continuing to innovate to anticipate industry changes
- 25% – 30% Return on Invested Capital
- Good culture: 100% of glassdoor reviewers approve of CEO
- Wind energy generation will frow from 5% of global power generation in 2018 to 26% in 2050.
- TPI is targeting 20% of the global wind blade market
- Key markets include US, Mexico, China, India and Europe
- Major OEM customers include Vestas, SGRE, GE Wind, ENERCON and Nordex Group.
- Municipal e-bus sales estimated to grow at 29% CAGR
- TPI invested $50m in 2019/2020 to diversify to EV
- Partnering with Workhorse, Proterra, Navistar and GM
- Last three quarters Revenues YoY growth: +19%, +13%, +24%
- Last three quarters EPS: -0. 01 , -1.42, +1.13
- Historically strong free cash flow, TPIC reinvests to fund growth
- Minimum of volume commitments of $2.9b and incentives for customers to spend $2.2b more, for total aggregate of $5.1b thru 2024.
- Up 591% since March lows (246% YTD)
- Up 100% since US election in November
- ~17% gap to 21d EMA , ~31% gap to 50d MA
- Potential moving sideways to build new base
The stock is too extended now to offer a buy point. The 10d ATR (x2.7) suggests a 17.07% stop loss which is a little high for me. I would wait for this to pull back or move sideways to form a new base, but it may have too much wind in the blades to do stop. 🙂
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