Capstone Turbine Downgraded To Strong Sell - Analyst Blog

Zacks Investment Research downgraded Capstone Turbine Corp. CPST to a Zacks Rank #5 (Strong Sell) on Jun 13, 2014. Going by the Zacks model, companies holding a Zacks Rank #5 have strong chances of performing worse than the broader market.

Why the Downgrade?

Share price of Capstone Turbine slipped 1.9% after the release of fiscal fourth-quarter 2014 (ended Mar 31, 2014) results on Jun 12. The company reported loss of one cent per share, flat compared with the previous quarter. Also, the bottom-line result was in line with the Zacks Consensus Estimate.

Revenues generated were $36.4 million, down 2% from the previous quarter and below the Zacks Consensus Estimate of $39.0 million. Costs of sales increased 2.1% sequentially; leading to an approximate 16.2% fall in gross profit with margin going down by 300 basis points to 17.0%. Research and development expenses rose 9%.      

Lackluster quarterly results triggered downward revision in earnings estimate for Capstone Turbine. Over the last seven days, the Zacks Consensus Estimate remained stable at a break-even level for fiscal 2015, while for fiscal 2016 it declined 14.3% to 6 cents per share.

Lowered estimates coupled with an average negative earnings surprise of 100% have made us doubtful about Capstone Turbine's performance in the quarters ahead. Currently, the company has an Earnings ESP of -16.7% for fiscal 2016.

Other Stocks to Consider

Capstone Turbine has a market capitalization of $504 billion. Some better-ranked stocks in the same industry include EnerSys ENS, ESCO Technologies Inc. ESE and AO Smith Corp. AOS. While EnerSys sports a Zacks Rank #1 (Strong Buy), both ESCO Technologies and AO Smith carry a Zacks Rank #2 (Buy).