Maxim: Capstone Turbine’s rental-business growth may shrink fiscal 4Q earnings loss

Maxim Group on Monday announced it expects Capstone Turbine Corporation (NASDAQ:CPST) to report a smaller fiscal fourth-quarter earnings loss than previously estimated based on growth in the microturbine maker’s rental business.

Analyst Tate Sullivan wrote he has narrowed his EBITDA (earnings before interest, tax, depreciation and amortization) loss forecast to $2.1 million from $2.7 million, citing a “potential for slightly higher margins in Capstone’s natural gas turbine rental program.”

Capstone is expected to report fiscal 4Q and fiscal full-year 2019 earnings on Tuesday after the closing bell.

READ: Capstone Turbine gets a Buy rating and $2 price target from Maxim Group

Sullivan noted that the company’s quarterly EBITDA improved quarter-over-quarter by an average of 23% in the two previous quarters. He now estimates a 9.5% EBITDA improvement quarter-over-quarter.

The company in the current quarter launched an “expanded factory rental program” and Sullivan expects Capstone’s rental revenue will have much higher margins than sales of natural-gas turbines. 

READ: Capstone Turbine names ex-commissioner on Federal Energy Regulatory Commission to its board

To meet Maxim’s EBITDA loss forecast of $2.1 million, Sullivan said he expects gross profit margin will increase slightly quarter-to-quarter to 12.8% from 12.4% based in part on higher margins from Capstone’s rental equipment.

The analyst also wrote that Maxium Group forecasts Capstone to increase EBITDA in 2021 to $1.6 million from an EBITDA loss of $1.9 million in 2020 “based on operating leverage, more demand for backup power systems and growth in Capstone’s rental business.”

Maintaining a Buy rating, $2 price target

Maxim Group still maintains a Buy rating on Capstone’s stock and a price target of $2.

The company’s stock recently traded up 2.2% to $0.82 a share. 

Capstone, based Van Nuys, California, offers a product lineup of microturbines that can produce anywhere from 30 kilowatts to 10 megawatts of power, operating on a variety of gaseous or liquid fuels.

Maxim Group expects to receive or intends to seek compensation for investment banking services from Capstone in the next 3 months.

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