UPDATE: Goldman Sachs Initiates Westport Innovations at Sell; Earnings Power Overvalued

Goldman Sachs initiated coverage on Westport Innovations WPRT with a Sell rating and a $21 price target. Goldman Sachs noted, "We are optimistic on the natural gas engine penetration opportunity (15%+ by 2020) and Westport's differentiated offering. However, we see 16% downside as (1) the Cummins JV that accounts for nearly all of WPRT medium-term profits is scheduled to terminate in 2021, with a buyout option at 1.3x EBIT in 2019, (2) high distribution support requirements limit normalized profitability for the Heavy Duty franchise in the absence of a sizeable new agreement, and (3) although WPRT's technology provides best in class performance, low cost alternatives are competitive and available." Westport Innovations closed at $25.09 on Tuesday.