We have issued an updated research report on Maxwell Technologies Inc. MXWL on Apr 9, 2015.
Maxwell is considered as the market leader in the growing ultracapacitor market. In the fourth quarter of 2014, the company’s ultracapacitor revenues soared 56% year over year, primarily on growing hybrid transit vehicle and wind energy markets. The long-term prospects for the automotive, wind and hybrid bus markets remain positive.
The company is also pursuing growth opportunities in other vertical markets, including applications for backup power, power quality and heavy vehicle engine starting in order to further diversify its business.
A diverse revenue stream will lower its dependency on the Chinese bus market as a large portion of its current ultracapacitor business is concentrated in the hybrid transit bus and wind energy markets of China. Accordingly, Maxwell has identified several large and fast growing market segments like automotive, bus, train, truck and rail which also sync well with its core competencies.
Research and development (R&D) is an integral part of the company’s growth strategy. It keeps on adding new products to its portfolio through detailed focus on innovations and efficiency. In 2014, the company spent $26.3 million on R&D, which was up 16.9% year over year.
Recently, the company announced that Kenworth will provide a new engine start module and an inverter for increased performance on new trucks. The U.S. truck maker will now offer Maxwell Technologies’ ultra-capacitor-based Engine Start Module (“ESM”) as a factory-installed option on new Kenworth T680 and T880 trucks. The ESM is designed to start an engine in temperatures ranging from -40°F to 149°F, even when the batteries have low voltage.
On the flipside, a major challenge for Maxwell is its dependence on a small number of vertical markets, some of which are driven by government policies and subsidy programs. A large portion of its ultracapacitor business is presently concentrated in the Chinese hybrid transit bus and wind energy markets. These markets are dependent on government regulation and subsidy. Consequently, they may turn down or register slower growth rates when there are changes or delays in government policies and subsidy programs.
Maxwell is also witnessing significant competition and pricing pressure in the Chinese hybrid transit vehicle market, which fetches a significant portion of its revenues. This is mainly due to increased competition from local Chinese competitors. Hence, to retain its competitive edge, the company will have to resort to price cuts and offer more favorable sales terms to its customers. Cost reduction initiatives are unlikely to fully offset the impact of lower prices at least initially and profit margins are expected to decline in the near term.
Apart from these hindrances, over-reliance on third parties for manufacturing and logistics operations, foreign currency risks and dependence on macro-economic factors are causes of concerns.
Maxwell Technologies currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space are Kyocera Corp. KYO, Mobileye N.V. MBLY and Highpower International, Inc. HPJ. Kyocera and Mobileye hold a Zacks Rank #1 (Strong Buy) while Highpower International carries a Zacks Rank #2 (Buy).
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