Echelon Initiated with a $10+ Target

Echelon (ELON - Snapshot Report) designs, markets and sells system and network infrastructure products such as air conditioners, appliances, electricity meters, light switches, thermostats and valves for the smart grid and the network control markets. The company designs and supports systems and software that allow open and integrated control networks to connect machines and other electronic devices for the purpose of sensing, monitoring and controlling automatic doors, lighting, security systems, rail networks and many more.

The company is currently trading at its 52-week low price. After posting a strong revenue growth in 2007, Echelon provided very disappointing guidance for fiscal 2008, and blamed much of the shortfall on slow ramp of its NES [Network Energy Services] projects and delay in bookings. We believe slow bookings are likely to hamper growth in 2008.

Moreover, the stock has fallen significantly this year given its poor guidance, which will further hinder its top-line as well as bottom line over the next two years. We therefore believe that the stock should trade at a discount to its peer group.

We are initiating coverage on Echelon shares with a Hold recommendation and $10.50 target price. This represents a P/S [price-to-sales] multiple of approximately 2.8x, our fiscal year 2008 revenue per share estimate of $3.59, a discount to its peer group.

Read the full analyst report on ELON