Should You Bet on Westport Innovations?WPRT) is making good progress as far as reducing its losses are concerned. For example, in the second quarter, Westport posted a net loss of $20.5 million as compared to a net loss of $35.4 million during the same period last year. The company reported a lower net loss mainly due to its notable cost control efforts, which have allowed it to maintain sufficient cash flows on its balance sheet.
Focused on improving the cost profile
In fact, Westport is focused on improving its adjusted EBITDA through key contributions from its operating business units, growing share of net income from the joint ventures, and funding from growth partners.
Looking ahead, Westport is expected to be highly focused on optimizing its daily operations by minimizing non-core expenditures and temporarily delaying its future expansion initiatives to preserve cash flows and successfully counter the ongoing weaker commodity pricing environment.
Westport is keen on minimizing its non-core expenses amid tough global operating environment with significantly weaker commodity pricing and demand. This core strategy is believed to assist the company in maintaining enough cash flows to continue with its operations profitably while delivering satisfactory shareholder returns.
Improving end market traction will be a catalyst
There is robust growth in consolidated truck and bus engine shipments for both Weichai Westport and Cummins Westport. As a result of these partnerships, Westport has been able to capture a notable share of the fuel market with WP10 natural gas engine having approximately 11% share of nearly 246,000 10L annual engine sales and WP12 natural gas engine capturing about 32% share of nearly 37,000 12L annual engine sales.
Westport’s innovative HPDI engines for natural gas trucks represent more than 5% of the HD market and is lead by spark ignited (SI) Engines (CWI & Weichai). In addition, there are efficiency enhancements with HPDI compared to SI and having several OEMs working in development with Westport.
The notable market size for natural gas engines offers a significant growth opportunity for the key engines manufacturer with the core demand forecasted to grow exponentially in the near future.
In addition, to expand its expertise and capture more of the end market, Westport recently agreed to buy Fuel Systems Solutions in an all-stock deal valued at approximately $136.4 million that is believed to boost earnings during 2016 and deliver annual cost savings of about $30 million.
The planned new acquisition of Fuel Systems Solutions Inc. is expected to boost the cash position of Westport and save it from becoming a debt-laden company.
Despite all these positives, Westport has a poor valuation as its PEG ratio is negative at 0.10. In addition, the company has a really weak profit margin of a negative 117%. Moreover, Westport is debt-burdened with a debt position of $71.66 million. In comparison, it has lower cash of $60.65 million. As a result, I think it will be wise for investors to wait for further improvements in Westport’s financials before taking a call on the company.
Published on Sep 27, 2015By Harsh Singh Chauhan