Tuesday, July 7, 2015

Seeking Alpha: EnerNOC Hard To Value And Facing Major Regulatory Unknowns

Utility services provider EnerNOC (NASDAQ:ENOC) has always been a more challenging story than average, but the company's operating environment has become considerably more uncertain since I last wrote about the company. In a nutshell, the risks that regulatory changes would change/challenge the company's core business have come home to roost in a big way, and there is little-to-no certainty now regarding how the demand response market will look in a year or two.

While the source of almost 50% of EnerNOC's revenue spasms, management is pivoting the company toward its software-as-a-service (or SaaS) business and the opportunity to help enterprises and utilities better track, plan, and control energy consumption and spending. Here too, though, there are ample uncertainties as most SaaS businesses have yet to establish a consistent level of GAAP profitability, making comparisons and projections for EnerNOC more challenging.

Modeling and risk-weighting various scenarios leads me to believe that ENOC shares are undervalued, with a fair value in the mid-teens. That assumes, though, that the demand response business is still viable on a long-term basis and that the SaaS business can deliver strong growth. The bull-case and bear-case boundaries are much wider than normal, though, and it is hard for me to argue that the potential here is worth the uncertainty and risk.

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EnerNOC Hard To Value And Facing Major Regulatory Unknowns

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