Maxwell Gets Defense Contract - Analyst Blog

Energy storage and power delivery products maker, Maxwell Technologies Inc. (MXWL), was awarded a $1.7 million technology development contract by the Defense Advanced Research Projects Agency (DARPA) for the initial phase of a multi-phase program to develop a lighter, longer-lasting, energy source for field radios and other portable electronic equipment carried by military personnel. Maxwell will lead a team involving the U.S. Navy and the University of Massachusetts for developing an energy storage device combining an advanced capacitor module, an advanced battery pack and power management electronics.

The research and development wing of the U.S. Department of Defense, DARPA, concentrates on maintaining technological superiority of the U.S. military by sponsoring revolutionary, high-payoff research that bridges the gap between fundamental discoveries and their military use. 

Maxwell Technologies develops, manufactures and markets energy storage and power delivery products for transportation, industrial telecommunications and other applications and microelectronic products for space and satellite applications. However, its future performance will improve mainly through strong ultracapacitor sales growth.

As a technology-driven company, Maxwell has to spend a substantial sum to maintain its technological edge over its competitors. Research and Development (R&D) spending is related primarily to product development of ultracapacitor cells, multi-cell modules and Microelectronics single board computers.

Research & Development expenses accounted for 16% of fiscal 2009 revenues. The company has regularly accessed funds through earnings dilutive share issuances. The number of outstanding shares has risen from 15.7 million at fiscal-end 2004 to 26.2 million at the end of the third quarter of 2010.

We are bullish on Maxwell's ultracapacitor driven growth story as demand is expected to rise since key end-markets appear likely to benefit from government stimulus programs as well as more stringent automotive emissions legislation.

The European Union has taken the lead in enacting legislation requiring carbon dioxide emission reduction targets and leveling penalties on vehicles whose emissions exceed the mandated limit. In the U.S. the Obama administration is focused on increasing federal investments in greener transportation technologies and the Chinese government is funding development and production of hybrid and electric public transit vehicles. 

Maxwell's geographically diversified ultracapacitor sales will benefit immensely from steady demand emanating from heavy transportation, wind, braking recuperation and automotive programs.

In the near term, however, the rate of penetration of ultracapacitor technology into broader markets, higher cost structure for ultracapacitor production, and earnings dilutive issuances present downside risk. We presently retain a short-term Zacks #4 Rank (Sell) and a longer-term Neutral recommendation on the stock. Simultaneously we are bullish on the company's Zacks #2 Rank peers who have a Buy recommendation, like Anaren Inc. (ANEN) and Power-One Inc. (PWER).

 
ANAREN INC (ANEN): Free Stock Analysis Report
 
MAXWELL TECH (MXWL): Free Stock Analysis Report
 
POWER-ONE INC (PWER): Free Stock Analysis Report
 
Zacks Investment Research