Morningstar | Ormat's Electricity Margins Show Strength, Product Margins Continue Decline
We are reaffirming our $47 fair value estimate for Ormat Technologies after the company reported first-quarter adjusted EBITDA of $101.8 million, up from $98.4 million in the year-ago period. Management reaffirmed its 2019 revenue guidance of $720 million-$742 million and adjusted EBITDA expectations of $370 million-$380 million, excluding any effects from Puna.Blended gross margins for the quarter were 37.3%, down from 39.9% in the year-ago period. Our full-year expectation for blended margins is 38.1%. We don't plan on changing our full-year margin expectation based on first-quarter results. Electricity margins were strong at 45.7%, up from 44.5% in the same year-ago period. Excluding the shutdown of Puna, margins would have been 48.2% at the unit. Management expects to have the Puna power plant on line by year-end. The Hawaiian power plant was damaged by volcanic activity last year.
At the smaller product segment, margins were particularly weak at 18.2%, down from 30.7% in the year-ago period. Product mix, particularly with contracts in Turkey, continues to drag on margins.
We remain skeptical of the long-term potential for the company's energy storage business. Margins at the unit were negative 30.2%, down from negative 20.3% in the year-ago period. We continue to think it will be difficult for this business to attain a competitive advantage, given its small scale.
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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