In 2010 Ormat Technologies, Inc. (NYSE:ORA) bought a number of assets in California from Exelon Corporation (NYSE:EXC)’s Constellation. The company recently changed its sales agreements for its Mammoth, California facility. This will give the company more income over the long run, but it was forced to pay a $9 million termination fee in the first quarter, 2013. This fee helped to push the company’s electricity generation segment to post a loss in the last quarter. This is a short term negative that should not be over emphasized.
The company’s total debt to equity ratio of 1.44 should be watched. It has a worldwide generational capacity of 611 megawatts and more than $2 billion in assets, but it is important to make sure that its debt load doesn’t rise substantially. With expected 2014 EPS of $0.78 it quite expensive at its current forward price to earnings (P/E) ratio around 29.
The U.S. Army is looking for cheaper and more secure ways to power its operations. When its facilities are close to significant supplies of underground heat, geothermal power is an effective and easy way to make ends meet. Even with geothermal’s positive long-term economics, Exelon Corporation (NYSE:EXC) is a questionable investment because of the high costs of its nuclear power plants. Siemens AG (ADR) (NYSE:SI)’s continues to be weighed down with Europe’s struggles. Ormat Technologies, Inc. (NYSE:ORA) is an attractive pure geothermal play, but it is trading at a high valuation. Until it comes down in price, it is best to leave it on the watch list.
The article The Army Is Investing in Geothermal, Should You? originally appeared on Fool.com and is written by Joshua Bondy.
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