Rodman & Renshaw Initiates Orion Energy At Buy, Attaches $2.50 Target

Orion Energy makes energy efficient lighting systems, with a primary focus of expanding its footprint in the LED market. The company's move into the LED market has resulted in a significant change to its operations.

"With this transition now complete, we believe the company should make steady progress towards achieving mid-30 percent gross margins (from high-20 percent levels currently)," analyst Amit Dayal wrote in a note.

On the revenue front, the analyst said the company's expanding distribution strategy and growing portfolio of LED offerings should give investors more confidence in its ability to capture share in the fast growing LED market.

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The company has sold its products to about 178 Fortune 500 companies like General Electric Company GE, Ford Motor Company F, Toyota Motor Corp (ADR) TM and The Coca-Cola Co KO.

Dayal believes Orion's existing relationship with these large customers should position it very competitively to win new LED business as replacement cycles come up.

"We believe the LED deployment opportunity within the existing high bay customer base alone is $850 million and overall less than 5 percent of the OESX deployed facilities have been retrofitted with LED systems," Dayal noted.

By 2030, LED lighting is estimated to account for the majority of installations and be equivalent to 88 percent of all "lumenhours" produced for general lighting. As such, the analyst believes Orion's total addressable market for retrofit lighting systems in North America is about $200 billion.

Orion's stock has traded between $1.04 and $2.50 over the last 52-week period, with a significant drop seen in early February 2016 on the back of weaker third-quarter revenues.

The stock has been depressed since those results, as investors await indications of improvement in in the company's LED sales and would like to see contribution from LED's steadily expand every quarter.

"Given these results we are taking a slightly conservative stance and are anticipating that some weakness may persist in the FY4Q16 results," Dayal highlighted.

For 2017, the analyst expects a loss of $0.32 a share and revenue of $80.8 million, while the Street expects a loss of $0.28 a share and revenue of $80 million.

At time of writing, shares of Orion Energy were up 5.83 percent on the day to $1.27.

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