American Superconductor Is a Great Play on Multiple Trends

Poised to benefit from three strong ,positive catalysts and trading at a low valuation, American Superconductor (NASDAQ:AMSC) stock is extremely attractive at its current levels.

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American Superconductor should be tremendously boosted by the emerging infrastructure deal making its way through the U.S. Congress and by its valuable deals with the U.S. Navy.

As I’ve noted in the past, like the much better known Stem (NYSE:STEM), American Superconductor is benefiting from the ongoing, massive transition to renewable energy among many U.S. businesses and electric utilities. But whereas Stem stock has a market capitalization of nearly $4 billion, the market capitalization of AMSC stock is only about $450 million.

Infrastructure Deal Should Be a Big Catalyst for AMSC Stock

According to the White House, the bipartisan infrastructure bill would “upgrade power infrastructure, including by building thousands of miles of new, resilient transmission lines to facilitate the expansion of renewable energy.”

American Superconductor happens to have developed resilient transmission lines that have already been implicitly endorsed by one major U.S. utility and the U.S. Department of Homeland Security.

Specifically, on June 3, American Superconductor CEO Daniel McGahn reported that the company’s REG system, was expected to go online this summer. Launched in partnership with Chicago electric utility ComEd and partially funded by the federal Department of Homeland Security, REG will enable Chicago electricity substations to prevent blackouts by – in an unusually compact, easy, inexpensive manner – shifting electric capacity and redundancy, according to Mike Ross, American Superconductor’s managing director of superconductor power systems.

REG, which stands for Resilient Electric Grid, may be adopted by other, large utilities, as ” U.S. utilities are focused on the execution of this first Chicago project,” McGahn said during the company’s first-quarter earnings conference call held last month.

With the bipartisan infrastructure bill looking poised to pass, the federal government should have plenty of money to fund many additional deployments of American Superconductor’s REG system.

American Superconductor Should Get a Big Lift From the U.S. Navy

The company has already received four contracts from the Navy for its degaussing system, called SPS, and it expects to deliver the first system during its current fiscal year. The system, which protects ships from being detected by mines, is 90% lighter than currently used degaussing products.

Strongly indicating that many more contracts from the U.S. Navy and other navies are on the way, McGahn said:

San Antonio Class is our first design win with the U.S. Navy. We believe we’ve identified the next opportunity beyond the San Antonio Class for SPS. We intend to report on that potential opportunity just as soon as we can. We expect opportunities to sell our SPS to allied navies as well and are actively working to make that happen.

The CEO said that the four orders that the company has are worth about $40 million, while the company could obtain about $110 million of additional revenue from just providing SPS to the rest of the ships in the San Antonio class.

The Transition to Green Energy Is Helping American Superconductor

As I noted in an April 26 column,

Much like Stem Energy — which many see having a very bright future — American Superconductor sells products that enable utilities and businesses to effectively connect renewable energy sources to the grid and manage electricity flows. As more companies use renewable energy and EVs, such products will be in increasingly high demand.

Indeed, McGahn believes that the company’s New Energy Power Systems unit, which features the products that I described above, is well-positioned to generate total revenue of $80 million of revenue per year, versus the company’s total Q1 revenue of $87 million.

He noted that the company’s revenue from its D-VAR products, which help businesses manage their electricity from renewable energy sources, doubled over the past few years and is nearly $40 million this year. And McGahn pointed out that, earlier this year, the company announced $90 million of orders for its VVO systems that enable utilities to better manage renewable energy sources.

Adding that the New Energy Power Systems unit carries strong margins and has a total addressable market of $3 billion, the CEO said, “Our New Energy Power Systems business is expected to play an important role in accelerating us to begin operating cash flow positive and position us for more dramatic growth.”

With the Biden administration and Congress looking poised to take actions that will greatly accelerate the green transition, American Superconductor is well-positioned to become very profitable within a couple of years.

The Bottom Line

With AMSC stock trading for just 4x analysts’ average 2022 sales estimate for the company, I believe that the market is greatly undervaluing the company’s huge opportunities and upcoming profits.

Also worth noting is that STEM stock is changing hands for well over 10x analysts’ mean 2022 sales estimate for that company. I strongly recommend that all growth investors buy AMSC stock.

On the date of publication, Larry Ramer held long positions in AMSC and STEM. 

Larry has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks have been solar stocks, Roku and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.

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