Wunderlich Securities analyst Theodore O’Neill today raised his rating on battery maker A123 Systems (AONE), which makes cells to power plug-in hybrids and electric vehicles, to Hold from Sell, arguing that it’s not a good idea to be short the stock ahead of several “catalysts” that he sees.
O’Neill raised his revenue estimate for the latter half of this year, modeling $169.5 million, based on his expectation the company may sell 1,000 battery packs a month to Fisker, the Anaheim, California company that is making what it bills as “the world’s first premium hybrid electric vehicle,” the “Karma.” Fisker is A123′s largest customer.
O’Neill sees the Karma moving closer to availability:
The long-awaited delivery of Fisker’s new Karma in the U.S. is only being held back at this point by EPA approval of engine emissions. We checked with the EPA that referred us back to Fisker. Fisker says and dealer checks confirm it could happen within the month. When it does and when the cars reach the dealers, this would be a near-term positive for the stock. Indeed, AONE appears to be on track to get close to 4,000 battery packs by year end.
However, the sales of the battery packs would also dent profit, with O’Neill now seeing A123 losing $173 million in operating cash flow this year, worse than his prior $149 million estimate. Hence, he cut his price target as well, to $3 from $3.50.
Also keeping him from a Buy rating, O’Neill notes that A123 will need to raise cash in the next six to nine months, probably on an equity basis that would be dilutive, and that Fisker itself is in need of “constant infusions of cash to fund working capital.”
A123 shar! es today are up 21 cents, or 6%, at $3.53.
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