Echelon Holding Steady

As a leading provider of smart grid meters, Echelon Corp. (ELON - Snapshot Report) is well positioned in the rapidly growing advanced metering infrastructure (AMI) market. The company reported lackluster earnings and revenue guidance for Q1 of 2009.

The current economic slowdown, ongoing weakness in credit markets, weak consumer spending and lack of order visibility have been hindering ELON's profitability.

We expect growth at ELON to be back-end loaded due to new customer orders but remain uncertain on how speedily the new projects will be awarded to Echelon. Although we still believe ELON will show improvement over time, we would not be overly anxious to get into the stock.

We have increased our target price to $8.50 and maintain our Hold rating. We maintain our Hold rating on ELON shares with a new 6-month price target of $8.50. This represents a P/S multiple of approximately 3.5x our fiscal year 2009 revenue per share estimate of $2.40, a premium to the industry.