Obama's Latest $3.4 Billion Grant Means Big Profits for This Green Industry's Shareholders

Andy Obermueller's picture

Thursday, October 29, 2009 - 1:22pm

by Andy Obermueller

I'm going to tell you how to save some money.

It's an easy fix. You probably won't notice anything other than the savings.

It has to do with your icemaker.

If your house is anything like mine, there are certain sounds you've learned to ignore. My dishwasher, for example, makes a loud noise when it finishes the cycle and turns off. I've learned to live with it. Likewise, there's a floorboard upstairs that moans every time someone steps on it. I don't even hear it anymore, but it can wake a guest out of a sound sleep.

Another noise my mind has trained itself to process but ignore is the icemaker. You know the sound I mean: The muffled crash of a new batch of ice cubes falling from the icemaker into the ice bin.

Turns out that's one expensive noise.

Icemakers draw a tremendous amount of power. And they typically use power during the heat of the day. When you fill a pitcher or a cooler or even a glass up with ice, a sensor in your ice bin activates the ice maker to make enough ice to replace what you've just used. That tends to happen during the day when you want to make something cooler, typically because it is warm outside. That's when power is most expensive.

So if you want to save money, look inside your ice bin and raise the sensor arm so it thinks the ice bin is full. If you run low on ice, put the sensor down when you go to bed (Power is cheaper at night). You'll save money on power, you'll still have plenty of ice, and the sound, which you're already used to, won't keep you awake.

That's a low-tech solution.

The high-tech solution was announced yesterday.

President Barack Obama traveled to a progressively "green" power company in Florida -- FPL, which my colleague Tom Hutchison will automatically make ice only at night. Your washer and dryer will go into energy efficient mode during peak hours. And your plug-in vehicle won't draw any juice from the grid until nighttime. Other applications will save Americans billions on their power bills, and cut the amount of pricey power we use in peak times.

Mr. Obama's $3.4 Billion 'Smart Grid' Investment
Empower Customers to Save Energy and Cut Utility Bills $1 billion
More Efficient Electricity Distribution and Transmission $400 million
Integrating Different 'Smart' Components of the Grid $2 billion

Total : $3.4 Billion

The Obama administration says these meters (and other parts of the grid that his $3.4 billion grant is funding) will create thousands of jobs. Plugging them in will save billions of dollars. Most people won't even notice the effects, but the overall plan -- which also included upgraded transformers and special sensors -- will make for a more efficient, less expensive power grid.

One hundred utility companies received grants from the feds, most of which they had to match or exceed with their own dollars. So the bottom line is that this federal largesse, part of the $787 billion stimulus package, will mean a total of $8.1 billion in grid-related spending.

While the good people at the Department of Energy tried to quantify every element of the story, one thing they didn't tabulate was the total number of these "smart meters" that utilities will be buying.

Well, I added it up. And I was shocked.

The answer is an astonishing 16.6 million. That's a lot of business for smart-meter makers. These 100 utilities are only a tiny fraction of the nation's 3,000 power providers, all of whom will be installing smart meters for their customers.

These three companies are major smart-meter manufacturers:


Comverge Revenues
Year Revenue
2008 $77.2 Million
2007 $55.2 Million
2006 $33.9 Million

Comverge (Nasdaq: COMV)
This New Jersey-based maker of smart meters and software to manage them has had a spectacular run so far this year, with a +144% gain since Jan. 1. The past five days have shown a slight loss, indicating the market is less than enthused about its chances to profit from the impending smart-meter orders from the nation's utilities. The company has yet to show a profit, though its revenue trend is promising, with its 2008 top-line +128% higher than 2006.

EnerNOC (Nasdaq: ENOC)

This $700 million company doesn't have any earnings, though it has promised a profit for 2010. Like Comverge, it has rising revenue but is still racking up losses, bleeding through $18 million in the first half of the year on about $60 million in revenue. The NOC in its name stands for Network Operations Center, where it monitors power streams for its customers. While the rest of the energy community was tuned to the White House's announcement of smart-grid funding, EnerNoc was trumpeting a new contract with the state of Connecticut.


Itron's Earnings Per Share
Year EPS
2008 $3.36
2007 $2.73
2006 $2.06
2005 $1.84
2004 $0.93

Itron (Nasdaq: ITRI)
Itron isn't a startup or a small-cap, it's a $2.3 billion company with a strong history of increased earnings. Its shares are trading at their typical valuation, so any investor who wades into these shares is betting on the smart-meter orders juicing Washington-based Itron's bottom line.

It's not a bad bet: The company itself issued a news release after the Energy Department announced the grants, congratulating the feds for their vision and noting that some of the largest grid recipients -- such as San Diego Gas & Electric and CenterPoint Energy (NYSE: CNP), were among its clients.

Of these three companies, Itron is the clear leader.

Itron's long history of rising profits shows it is attentive to industry, and it's poised to snag a large percentage of the 16.8 million new smart meters the Energy Department's latest grants will help fund, as well as millions more from other power producers. At $200 each, the CenterPoint contract alone could mean $440 million in revenue and, at a 10% margin, would add $44 million to the bottom line -- three times what the company earned last quarter.

In the future, smart meters and other intelligent appliances will help us conserve power.

In the meantime, you can save a few bucks turning off your icemaker during the day and flipping on the dishwasher on your way to bed. As for your portfolio, Itron appears to offer the best opportunity for growth-oriented investors right now.

Andy Obermueller does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.