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Scummy Vultures Can't Even Stop the POWR Surge



July 23, 2014 – Comments (2) | RELATED TICKERS: POWR.DL

As I mentioned in a blog post last month, I have been long the stock of PowerSecure (POWR) since
May when a small-cap activist investor named Becker Drapkin became involved with the company after its stock was absolutely crushed to the tune of 60%+ on a poor earnings announcement.  Here's a copuy of the Barron's 13F article that brought the situation to my attention.

Stock Market Value: $191 million ($8.58/share)
What's Happening: Becker Drapkin Management intends to discuss with management the need for discipline and focus in resource allocation, and may nominate directors to serve on the board.

Key Numbers:
74.77%: average return on Becker Drapkin's 18 previous 13D filings (versus 23.55% for the S&P 500 during the same spans)

108.99%: Becker Drapkin's average return on the 11 previous 13D investments where it had a board seat (versus 27.78% for the S&P 500 during the same spans)

Behind the Scenes: Becker Drapkin is an activist investor that focuses on companies with market caps below $1 billion. It has received board seats on over half of the companies on which it has filed 13Ds.

PowerSecure has three businesses: 1) distributed generation products and services—the crown jewel, with the highest margins and recently losing money; 2) utility infrastructure—a lot of competition and lower margins; and 3) energy efficiency products—a good business that accounts for less than 20% of company revenues.

Becker Drapkin would like to see management focus on the distributed-generation-products business and fix the utility-infrastructure business, as opposed to engaging in undisciplined growth initiatives. It will likely give the company an opportunity to refocus, but if management continues down the same road, Becker Drapkin could go for a board seat or urge the board to sell the company in whole or parts."

Last month, the company's stock soared over 20% when it announced that it had renegotiated a contract with a major utility company to make it more profitable (link).  It's off the the races again today, up another 10% after announcing that it has added $140 million of new distributed generation.

PowerSecure Adds $140 Million In New Distributed Generation Business

A well-respected, former Fool, Toby Shute, recently weighed in on PowerSecure in an article over in SA:

"Present-Day Plunge #1: PowerSecure (POWR)

On May 8, 2014, energy technology and services firm PowerSecure fell a staggering 62% following its first quarter earnings release. The company achieved very poor utilization in its Utility Infrastructure division that, combined with a protracted sales cycle in the Distributed Generation division, was going to torpedo earnings for the year. There was a lot of cussing on the conference call. I clock the founder/CEO, Sidney Hinton, at 8 "damns" and 11 "hells". He was clearly fired up. I like to see that. Hinton beneficially owned 2.7% of the company as of the April 2014 proxy, so this decline hit his pocket pretty hard.

Both of Q1's problem divisions have lumpy revenue profiles. On the DG side, which is by far the best and most valuable piece of PowerSecure's business, the longer sales cycle was compounded by an internal shift in emphasis toward company-owned DG systems that provide high-margin recurring sales. These sales produce lower up-front revenue, akin to a software company switching to a SaaS model. I think the company could have explained that transition better. When the recurring revenue ramps up, and PowerSecure converts some of its robust pipeline of large hospital and data center deals into backlog, I think investors are going to be breathing a lot easier.

As for Utility Infrastructure, it's an inferior, low margin business. I expect POWR to improve it or sell it. Signs currently point to improvement, following a press release in late June announcing an amendment of terms on a problem contract with a major customer. PowerSecure said it "believes these changes will restore the profitability of the work provided to this utility."

A side benefit of highly visible stock plunges is that they can draw activist attention. I wasn't the only one buying when the blood was running. Becker Drapkin filed a 13D on May 27, disclosing an 8.8% stake in POWR and stating their belief that "the shares of Common Stock are undervalued and represent an attractive investment opportunity. The Reporting Persons believe the assets of the Isssuer trade at a steep discount to intrinsic value. Recent operational issues underscore a need for discipline and focus in resource allocation." Based on those comments, my guess would be that Becker Drapkin will push for a sale of the Utility Infrastructure and/or Energy Efficiency divisions, but that remains to be seen.

To state the obvious, I agree with these folks about the undervaluation here, though the steep discount has narrowed a bit since May. The window of opportunity to establish a sub-$7 position was essentially four days. Interestingly, one could have taken the entire weekend to research and ponder, and then gotten even lower prices on Monday (day 3 of the plunge). Still, one had to act fairly quickly."

Make Money From Mr. Market's Mercurial Moods"

You know what's funny?  All of those scummy vulture-like, ambulance-chasing lawyers who are filing class action lawsuits "on behalf" of POWR shareholders had better hurry up or the stock is going to make up much of its losses before this thing gets to court.  All these people are doing is actually harming the company more, consuming the attention and resources of management who now have to defend themselves against absurd lawsuits rather than completely focusing their attention on improving the company's operations.  Look at all of them.  Are you kidding me?  Sometimes the share prices of publicly traded companies drop.  If you really like the company then use that as an opportunity to add shares for the turnaround.  If not, oh well too bad, so sad that's part of the game.  As far as I can tell, nothing illegal happened here.  The only people who are going to make anything off of this are the lawyers, the "plaintiffs" are going to end up getting $2.50 and a free light bulb each.

DEADLINE TOMORROW: The Law Offices of Vincent Wong Notify Investors of Class Action Lawsuit Involving PowerSecure International, Inc. and a Lead Plaintiff Deadline of July 22, 2014

POWERSECURE 96 HOUR DEADLINE ALERT: Approximately 96 Hours Remain; Former Louisiana Attorney General and Kahn Swick & Foti, LLC Remind Investors of Deadline in Securities Class Action Lawsuit Against PowerSecure International, Inc. - POWR

Hagens Berman Alerts Investors: 5 Days until Lead Plaintiff Deadline in PowerSecure Securities Fraud Extended Class Action

Glancy Binkow & Goldberg LLP Announces An Expanded Class Period in the Shareholder Lawsuit Against PowerSecure International, Inc.

SHAREHOLDER ALERT: Levi & Korsinsky, LLP Reminds Investors of Class Action Against PowerSecure International, Inc. and Its Board of Directors and a Lead Plaintiff Deadline of July 22, 2014 -- POWR

INVESTOR ALERT: Law Offices of Howard G. Smith Announces Lead Plaintiff Deadline In The Class Action Lawsuit Against PowerSecure International, Inc.

Robbins Geller Rudman & Dowd LLP Files Class Action Suit against PowerSecure International, Inc.



Thanks for reading everyone.  Have a great day!

2 Comments – Post Your Own

#1) On July 23, 2014 at 11:52 AM, Teacherman1 (< 20) wrote:

I share your frustration Jason.

Remember, it only takes a few hundred dollars to file a lawsuit, and they are just rolling the dice to see if the company will pay them to go away.

This happens way too often these days.

As my late step father used to be fond of saying, "The best thing that could happen for this country would be for all the law schools to close for 100 years, and then start all over, with an emphasis on common sense".

I have POWR on my watch list, but it hasn't gotten down low enough for me to pull the trigger yet.

Good luck with your investment, and don't let the "Vultures" get you down.  

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#2) On July 23, 2014 at 12:18 PM, NadiaAndJulia (62.84) wrote:

It's #1 performer in my portfolio.

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