Ormat Tech Execution Already Priced In; JPMorgan Moves To Neutral

Ormat Technologies, Inc. ORA was downgraded by JPMorgan to Neutral from Overweight.

The downgrades comes despite the stock touching a new 52-week high of $45.13 on May 5 after the geothermal energy company reported better-than-expected quarterly results and reaffirmed its full year revenue outlook.

"[W]ith the stock up 20% YTD versus the mean of our Alt Energy coverage down 20% (SP500 flat), and trading slightly above our $43 price target, we believe risk-reward is balanced," analyst Paul Coster wrote in a note.

Ormat‘s first quarter earnings of $0.59 a share topped $0.35 consensus estimate and revenue of $151.6 million also came in above the Street view of $138.33 million. The company still sees full-year revenue of $620 million to $640 million versus Street estimate of $632.03 million.

Though the company's project pipeline remains robust and long-term MW targets were reiterated, Coster doesn't foresee catalysts that will add meaningful upside to FY16 estimates.

However, the analyst expects Ormat to maintain an adjusted EBITDA CAGR of 8-12 percent over the next three years on revenue growth in the low single digits, with potential upside from M&A.

"We expect electricity service revenue to grow to well over 70% of overall revenue, buoying gross and EBITDA margins and potentially buoying the valuation multiple, too," Coster highlighted.

But, at about 9.5 times CY16E EV/EBITDA, the analyst said the stock seems appropriately valued.