RBC says their checks indicate that Zoltek (NASDAQ:ZOLT) has made significant progress in negotiating an extension to the Vestas contract at terms better than their prior expectations. The current 3-yr $80-100M contract expires at the end of 2007. Firm believes a new contract size could be 2 - 2.5x prior yearly levels. While the impact to RBC's estimates would depend on the contract details, a contract of this size could represent 10-20c side to their 2008 estimates, and further 2009 growth. Firm believes Zoltek is in a superior negotiating position vs. Vestas, who has limited alternative options. A new material contract would likely require a press-release intra-qtr (rare for this company) and be a major catalyst for the stock. Investors adding to positions before this catalyst will likely benefit from both forward earnings and multiple expansion.
While they are remaining conservative on their valuation and price target for the moment, firm believes another solid qtr of execution (esp on the revenue, gross margin and Abilene yield fronts) after the solid Q107 will go far in alleviating investor concerns. In addition, a new Vestas contract could cause them to reconsider the substantial multiple discount to growth their current target reflects. Firm's current PT is 19x calendar 2008 EPS of $1.67 (a 0.3 PEG ratio).
Notablecalls: Actionable call alert! Think the stock has at least a point of upside in it today.
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