Zacks_Analysts' Blog : A Christmas Gift For Maxwell - Analyst Blog

Energy storage and power delivery products maker, Maxwell Technologies Inc. (MXWL) garnered approximately $7.5 million just before Christmas from warrant holders exercising their rights to purchase the company’s common stock at a price of $16.22 per share. In all 462,461 warrants to purchase its common stock were exercised in full on December 20, 2010. The warrants were issued in conjunction with a private placement of $25 million convertible debentures in December 2005.

Maxwell Technologies develops, manufactures and markets energy storage and power delivery products for transportation, industrial telecommunications and other applications and microelectronic products for space and satellite applications. However its future performance will improve mainly through strong ultracapacitor sales growth.

As a technology-driven company, Maxwell has to spend a substantial sum to maintain its technological edge over its competitors. Research and Development (R&D) spending is related primarily to product development of ultracapacitor cells, multi-cell modules and Microelectronics single board computers.

R&D expenses accounted for 16% of revenues in fiscal 2009. The company has regularly accessed funds through earnings dilutive share issuances. The number of outstanding shares has risen from 15.7 million at fiscal-end 2004 to 26.2 million at the end of the third quarter of 2010.

We are bullish on Maxwell’s ultracapacitor driven growth story as demand is expected to rise since key end-markets appear likely to benefit from government stimulus programs as well as more stringent automotive emissions legislation.

The European Union has taken the lead in enacting legislation requiring carbon dioxide emission reduction targets and leveling penalties on vehicles whose emissions exceed the mandated limit. In the U.S. the Obama administration is focused on increasing federal investments in greener transportation technologies and the Chinese government is funding development and production of hybrid and electric public transit vehicles.  

Maxwell’s geographically diversified ultracapacitor sales will benefit immensely from steady demand emanating from heavy transportation, wind, braking recuperation and automotive programs.

In the near-term however, the rate of penetration of ultracapacitor technology into broader markets, higher cost structure for ultracapacitor production, and earnings dilutive issuances present downside risk. We presently retain a short-term Zacks #3 Rank (Hold) and a longer-term Neutral recommendation on the stock. Presently we are bullish on the company’s Zacks #1 Rank peers who have a Strong Buy recommendation, like AVX Corporation (AVX) and Power-One Inc. (PWER).