Clean Diesel Tech Shares Downgraded To Neutral, Analyst Concerned With Limited Near-Term Visibility

• Clean Diesel Technologies, Inc. CDTI shares are down 4 percent in the last one month, remaining below the $2 mark since October 16.
• Roth Capital Partners’ Matt Koranda downgraded the rating on the company from Buy to Neutral, while reducing the price target from $2.40 to $1.50.
• Although the company’s long-term strategy appears right, there is lack of near-term visibility into new streams of revenue, while the Honda revenue is likely to end in 2H17, Koranda said.

Analyst Matt Koranda believes that the long-term strategy being pursued by Clean Diesel Tech’s new CEO Matthew Beale would eventually result in profitability. The powder to coat [P2C] model is likely to enable the company to focus on its core strength, which is its materials science expertise around low and zero PGM catalyst technologies.

Over the next several years, Clean Diesel Tech is likely to begin supplying its low and zero PGM catalyst technologies to catalyst coating firms that have a larger presence globally and better economies of scale.

Moreover, the P2C approach would require lower opex over time, and may result in a higher-margin business “with limited requirements for physical manufacturing infrastructure and the accompanying support functions,” Koranda mentioned.

“In the near-term, however, we have limited visibility into new revenue streams from the P2C model. Additionally, we do not yet have a clear picture of what a leaner organization will look like from an opex standpoint,” the analyst wrote. He added that the company is likely to face a cash shortfall by early-2016, which would continue to exert pressure on its stock,” the analyst said.

Clean Diesel Tech guided to total revenue of $40- $45mn in 2015 and projected its GM at the mid-to-high-end of its previous guidance on 25-28 percent. Management expects to wind down its catalyst coating business with Honda in 2H17.
“While we anticipate CDTI will share further commercial developments around its P2C business model, we have limited visibility into the timing or magnitude of those revenues,” Koranda added.