American Superconductor Is a Buy Ahead of Strong, Positive Catalysts

By Larry Ramer

American Superconductor (NASDAQ:AMSC) repo rted very strong fiscal  second-quarter financial results late last month, showing that it’s generally thriving. What’s more, the company has multiple, huge, upcoming opportunities that should enable the stock to climb much higher over the medium-to-long term. 

These strong, likely, positive catalysts are U.S. utilities’ investments in electrical grids, India’s ongoing expansion of its wind energy capacity, and the probable expansion of the U.S. Navy under the incoming Trump administration.

About AMSC’s Impressive Q2 Results

American Superconductor’s  revenue soared 60% versus the same period a year earlier to $54.47 million. AMSC did acquire NWL Inc., which provides power supplies to industrial and military customers in calendar Q3, and two months of NWL’s sales were incorporated into American Superconductor’s fiscal Q2 results. 

On Aug. 9, AMSC CEO Daniel McGahn reported that NWL had a 12-month backlog of about $44 million. Dividing the backlog by six in order to approximate how much it would be worth over two months yields $7.33 million. 

So, if we assume that NWL contributed $7.33 million of revenue last quarter, AMSC’s organic sales would have come in at $47.14 million. If the company had generated $47.14 million of sales, its revenue would have increased 38.6%, still representing a very impressive gain. 

On the profitability front, the firm’s cash from operations came in at $12.7 million, up from just $900,000 during the same period a year earlier.

Also impressively, the orders obtained by the firm’s wind business increased at a nearly 40% year-over-year clip, while those received by its new energy power offerings came in at almost $60 million.  The new energy power unit’s offerings help utilities, the owners of renewable energy projects, and industrial firms, such as chipmakers and miners, effectively integrate the electricity created by solar panels. 

American Superconductor’s Upcoming, Strong Catalysts

Speaking on the company’s fiscal Q2 earnings call, CEO McGahn suggested that over the longer term the company could use its technology to address America’s grid congestion and electrical transmission issues. 

And in the shorter term,  McGahn indicated that the firm would benefit from utilities’ increased investment in the grid. Of course, America’s power providers are being challenged to provide additional power in order to support the proliferation of AI. And while President-elect Trump may not fully embrace electric vehicles  — despite his embrace of Tesla’s Elon Musk  — and renewable power, there’s no evidence that he does not support AI. 

Indeed, in light of the fact that the latter technology is poised to increase the profits of many if not most companies, the incoming Trump administration will probably back the expansion of the grid that’s necessary to support AI’s growth. 

Incidentally, while Trump has historically been lukewarm about solar energy, solar stocks did quite well during his last term as president, with the Invesco Solar ETF (NYSEARCA:TAN) having soared from $17.67 in January 2017 to $34.79 in February 2020 and over $71 in October 2020. Add in new BFF Musk’s backing of solar and you can see why I expect solar energy to continue to grow rapidly during the second Trump administration. 

But Trump is not a big fan of wind energy. However, the lion’s share of the revenue of American Superconductor’s wind business actually comes from India. 

And with that South Asian country aiming to increase its installed wind energy capacity to 140 gigawatts from the current 48GW by 2030, AMSC’s revenue from its Indian partner, Inox Wind, should continue to grow rapidly in the coming years. Also making me more upbeat about AMSC’s wind business is the fact that Inox Wind reported that its backlog had jumped to a record 3.3GW in fiscal Q2 after increasing by about 1.2GW in the first half. 

Additionally, it had started generating positive operational cash flow in the first half of the fiscal year, And Inox noted that its operational cash flow “is bound to significantly increase going ahead.” 

Finally, conservatives tend to be in favor of significantly increasing the defense budget. AMSC is providing its mine-protection system for five of the Navy’s ships, and it’s developing a new “proprietary mine countermeasure system,” McGahn reported.

With the GOP likely to increase the Navy’s budget going forward, AMSC’s military business could get a significant boost by the GOP’s gains in this week’s election. 

Disclaimer: The author did not hold a position in any of the securities mentioned above. The information provided in this article is for educational and informational purposes only and should not be construed as investment advice. Always conduct your own research or consult with a licensed financial professional before making any investment decisions. Past performance is not indicative of future results.