ABB Ltd (ADR) (NYSE:ABB), in April, agreed to acquire Power One Inc (NASDAQ:PWER) for $6.35 per share. Power-One’s primary business segment is Renewable Energy Solutions, as the company is a supplier of power supply products. ABB’s intent is to gain a greater presence in the market for photovoltaic products, or solar inverters. Management believes the market is set to grow 10% annually through 2021.
Companies in the solar industry have fared well over the past year or so, allowing their stocks to gain ground. And that’s because pressure from Chinese manufacturers has subsided. In fact, global solar stocks appear to be up substantially from prior levels, as the industry is taking shape.Moreover, the overall market for energy-efficient offerings is on the rise, with traditional electrical equipment producers expanding their product lines.
The attraction
A diversified electrical products company, ABB Ltd (ADR) (NYSE:ABB) order levels have advanced the most in its Low Voltage Products division, reflecting rapidly rebounding demand for energy-saving, more productive offerings. Within this unit, it is developing e-mobility (electric car), PV, solar, and wind applications.
As the cost of solar power has fallen and with demand set to soar, ABB Ltd (ADR) (NYSE:ABB) believes in the profit upside of Power One Inc (NASDAQ:PWER)’s solar technologies that serve residential, as well as, utility applications. Power-One’s innovation prowess in renewable energy, providing it with global reach, along with technology and “quality” advantages, was a key factor in ABB’s decision to commit to the purchase back in April.
ABB Ltd (ADR) (NYSE:ABB) had already bolstered its presence in the low-voltage power market by way of the buyout of Thomas & Betts, an electrical product and steel utility pole manufacturer. The purchase was accretive to the bottom line in 2012.
A full-fledged solar products company
First Solar, Inc. (NASDAQ:FSLR) enjoyed a strong upturn in sales and profits in 2012. Revenues received a boost from robust growth in its solar power systems unit, offset partly by a sharp slowdown in sales of solar modules. The number of projects under construction increased considerably.
The Solar power systems unit produces complete turn-key PV solar systems units. Modules, for reference, are the devices that convert the sun’s light into energy.
While First Solar, Inc. (NASDAQ:FSLR) is poised to continue to perform well, earnings prospects have dimmed as compared to last year. The winding down or delay of certain solar projects may limit profits to some degree. Still, management is taking measures to upgrade product lines and thus enhance manufacturing efficiency. A June share issuance might well dilute share earnings somewhat. But the proceeds will be invested in positive net present value projects. In all, these factors render First Solar shares a long-term hold.
Summing it up
On a stand-alone basis, Power One Inc (NASDAQ:PWER)would probably be up against challenges, including price erosion, due to mix and reduced factory absorption. Similarly, Power-One’s capacity utilization has decreased, putting pressure on margins. The solar industry, nevertheless, should remain vital over time, as the return on investment improves.
Finally, Power One Inc (NASDAQ:PWER)’s likely acquirer, ABB Ltd (ADR) (NYSE:ABB), is on track for a nice profit improvement this year, regardless of Power-One’s impact. It boasts a large order backlog; plus, and an improved product mix. The Thomas & Betts synergies and initiatives, aimed at lifting operating margins, ought to help lift its market share. The Swiss company’s shares derive a five-star CAPS Community ranking and offer better-than average price appreciation potential, in addition to a decent dividend yield of 3.3%.
Damon Churchwell has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article Some Renewable Energy Businesses originally appeared on Fool.com.
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