Morningstar | ORA Updated Star Rating from 14 Mar 2019
We are reaffirming our $54 fair value estimate for Ormat Technologies after the company reported full-year adjusted EBITDA of $368 million, up from $343.8 million in the same year-ago period.Management initiated its 2019 revenue guidance of $720 million to $742 million and adjusted EBITDA expectations of $370 million to $380 million, excluding any effects from Puna. Guidance is slightly below our expectations, but we do not expect it to have a material effect on our long-term estimates. Management forecast $600 million in EBITDA by 2022, above our forecast of $540 million.
Gross margins rebounded at the company's electricity segment, with quarter-over-quarter margins up 900 basis points. Full-year margins were 41.5% and, excluding the interruption at Puna, were consistent with our long-term expectations. We continue to expect improvement in electricity margins long term.
The much smaller product segment saw full-year margins contract to 30.3%, down from 32.2% in the same year-ago period. Fourth-quarter margins ended at 28.7%, highlighting the continued expectation for shrinking long-term margins at the unit. A 200-basis-point change to our unit margin estimate changes our fair value estimate $1 per share. The product backlog remains healthy, with a current backlog of $216.8 million and an additional $60 million in commitments.
We remain skeptical of the long-term potential for the company's energy storage business. We think it will be difficult for Ormat to attain a competitive advantage given its small size. Ormat recently replaced management at the unit given the poor execution since acquisition. Management has signed 30 MW of contracts to date.
Ormat Technologies is a holding company. Through its subsidiaries, the company is engaged in the geothermal and recovered energy business. The company's segments include: Electricity, which develops, builds, owns and operates geothermal and recovered energy-based power plants in the U.S. and geothermal power plants in other countries and sells the electricity it generates; and Product, which designs, manufactures and sells equipment for geothermal and recovered energy-based electricity generation and remote power units and provides services relating to the engineering, procurement, construction, operation and maintenance of geothermal, Solar photovoltaic and recovered energy-based power plants.
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