Optimistic on Energy Conversion

We remain optimistic about Energy Conversion Devices, Inc.’s (ENER - Analyst Report) long-term potential success in the high growth alternative energy industry, given increased activity in solar power projects. The maker of thin-film flexible solar laminate products achieved profitability for the first time in the third quarter since it went public in 1969. The company is also developing and expanding its solar business while exiting other non-core businesses.

High and volatile global energy prices, in combination with declining technology costs, have renewed interest in alternative energy stocks, thereby pushing many valuations higher in volatile markets. With the company achieving break-even profitability during the second-half of fiscal 2008, and expected continued positive EPS through 2008-09, the stock is expected to trade at much attractive P/E multiples through 2008.

Nevertheless, we note the stock is highly volatile, pending the sale of its Cobasys joint venture. Additionally, despite increasing product revenue, the internal restructuring processes and several recent contracts, we question the profitability potential of licensing royalties.

Moreover, a history of negative profit margins and operating income without meaningful valuation metrics collectively show potential for moderate-to-high returns, but with high risk. Accordingly, we maintain a speculative Buy recommendation and a six-month target price of $74 on the stock.

Read the full analyst report on ENER