An Overlooked Christmas Gift For Energy Storage Investors

John Petersen Monday morning a reader sent me a link to a December 23rd press release announcing that the OM Group, Inc. ( OMG ) had agreed to buy EaglePicher Technologies LLC, a well regarded name in the battery industry, for $171.9 million, or roughly 1.4x sales. While I overlooked the release during the build-up to Christmas, the transaction is important because it provides a current bright-line reference point for energy storage investors on the difficult question, "what is a battery company worth?" EaglePicher was previously a unit of Eagle Picher Holdings, a public company that filed a voluntary petition under Chapter 11 of the Bankruptcy Code in April 2005. While I can't find detailed disclosures on the reorganized company's lines of business and profitability, EaglePicher's website describes a variety of battery chemistries ranging from lead-acid to lithium-ion and the press release indicates that approximately 60% of revenue comes from its defense business, 31% comes from its aerospace business and the balance comes from medical and commercial battery systems. The EaglePicher acquisition seems to be a logical step in OMG's vertical integration and diversification strategy. Since the details are limited, it's hard to perform a meaningful analysis of the various factors that give EaglePicher value. Nevertheless, the 1.4x sales number is very interesting because of the huge disparity in price/sales ratios among the 17 pure play energy storage stocks I follow. The following table identifies the companies in my tracking group, shows their December 31st closing price, shows their current market capitalizations, and shows the price/sales valuation ratios reported by Yahoo finance. While price/sales ratios have little or no utility when it comes to evaluating emerging companies that have not yet hit their stride when it comes to product sales, it can be a useful screening tool when comparing established operating companies that have relatively stable sales histories. Based solely on the price/sales ratio from the EaglePicher acquisition, I would conclude that the following companies might be seriously undervalued: C&D Technologies ( CHP ), which trades at 12% of sales; Exide Technologies ( XIDE ), which trades at 20% of sales; Enersys ( ENS ), which trades at 68% of sales; China BAK Battery ( CBAK ), which trades at 84% of sales; and China Ritar Power ( CRTP ), which trades at 87% of sales. Investors can't rely on a single metric in making an investment decision. Nevertheless, since the level of investment success frequently has a direct correlation to the initial entry price knowing how the market price compares with recent real world deals can be very enlightening. Disclosure : Author is a former director of Axion Power International ( AXPW.OB ) and has a substantial long position in its stock. He also holds small long positions in C&D Technologies ( CHP ), Exide Technologies ( XIDE ), Active Power ( ACWP ) and ZBB Energy ( ZBB ).