Top Small-Cap Pick With An Expected Reversal: Opower

• Opower Inc OPWR shares have lost 43 percent in one year, after having peaked at $19.36 in September 2014.
• Wunderlich’s Rob Breza maintained a Buy rating for the company, with a price target of $16.
• The company is poised for revenue acceleration and improved bookings profile, Breza said, adding that the stock is underappreciated.

Analyst Rob Breza said that Opower continued to be “one of our top-pick, small-cap companies.” The company has already closed contract expansions with two of its three largest customers this year. The renewals include a 7-year, $90M deal in 1Q and a 6-year, $50M deal in 2Q.

Breza believes that the company would be able to renew the contract with the third major customers as well. This would allow Opower to focus on capturing new business, resulting in revenue acceleration and improved bookings profile going forward.

Opower exited 2Q15 with about 100 customers, which represents a market penetration of only about 8 percent. “New products, such as Bill Advisor, should help drive accelerated billings growth from both new and existing customers… We expect this solution to be a leading driver of revenue growth acceleration heading into 2016,” Breza wrote.

The analyst believes Opower continues to be on track to record profits in 4Q17 and may have sufficient cash to initiative a share repurchase program.

In the report Wunderlich noted, “With OPWR currently trading at 2.5x 2016 estimated sales, we believe OPWR is undervalued and expect the shares to outperform our coverage group over the next 12 months, as we see Opower's revenue growth accelerating toward 20% next year from the mid-teens this year, with EBITDA margins expanding as a result of increasing operating leverage.”