Dougherty & Company Initiates A123 Systems at Neutral

Dougherty & Company has published a research report on A123 Systems AONE and has initiated coverage with a Neutral rating. In the report, Dougherty writes, "We believe AONE's long-term success is dependent upon its electric vehicle battery business scaling to more than ten times its current size, with annual unit volume of 49,000 (TTM is 4,000.) AONE's gross margins are negative and will be until at least 2013, according to our analysis. The biggest factor in reducing costs is volume, and thus, end-market demand of electric vehicles presents the biggest risk and opportunity for A123. We also need to see the electric grid storage business scale at a 45% CAGR to 2014. In the near term, we believe that A123 shares will be plagued with uncertainty over the company's capitalization. We believe AONE runs out of cash in Q213, unless it receives a politically tenuous $233MM Dept. of Energy loan or raises capital in late 2012. Also in the near term, we believe that street expectations for AONE are too high for 1H12, given delays with chief customer Fisker Automotive." Dougherty & Company has also established a $2 price target on A123 Systems, which is currently trading up $0.04 from yesterday's $2.41 closing price.