Maxwell Divests HV Product Line, To Focus On Ultracapacitors

Maxwell Technologies Inc. (NASDAQ:MXWL) recently completed the sale of High Voltage (HV) product line to Renaissance Investment Foundation for $55.1 million in cash, in an attempt to streamline its operations. With this divestment, the company aims to centralize its focus on Ultra-capacitor product line and proceed with development efforts of the Dry Battery Electrode (DBE) technology.

What Led to the Divestiture?

Maxwell’s HV product line has not been performing well in the recent times, thanks to the latest import tariff and tax reform-related uncertainties, both ushered in by the Trump administration. Evidently, the company recorded a solid year-over-year sales decline of 13% in the third quarter of 2018. Delays in Chinese infrastructure projects as well as the recent tariffs and trade disputes were the primary contributors to this sales decline.

Meanwhile, the Tax Act (implemented since Jan 1, 2018) has eliminated bonus depreciation for the end users of Maxwell’s high-voltage capacitor products. Considering this, Maxwell management is skeptic whether the company’s U.S. customers will begin investing in new infrastructure, including the purchase and integration of high-voltage products suitable for utility installations, or not. Moreover, some of Maxwell’s U.S. customers for high-voltage capacitor products have informed that these tariffs could limit its ability to meet customers’ demand or purchase material at competitive prices. Consequently, the company has become overtly skeptic about the HV product line’s future business. This in turn paved the way for this divestment decision.

Our View

With high-voltage capacitors out of its portfolio, the company now will direct its entire focus on the ultracapacitor product line and dry battery electrode technology.

Currently, given its ultracapacitors, the company aims at optimizing its energy storage portfolio to drive business diversification and transition the business to higher growth opportunities in a large and growing addressable market worth $1.4 billion by 2022. In this regard, Maxwell is making steady progress via leveraging its core competencies and diversifying ultracapacitor products, as Maxwell gradually transitions to higher-growth market opportunities in automotive, grid energy storage, rail and wind. The recent divestiture should allow the company to increase its focus on the ultracapacitor product line.

The company is developing dry electrode technology, which it believes has the potential to be a significant technology within the lithium-ion battery industry, with substantial market opportunity, particularly for use in electric vehicles (EVs). With the International Energy Agency projecting the number of EVs on road to grow from 3 million in 2017 to 125 million by 2030, we can expect Maxwell’s recent focus on fortifying the dry electrode technology to boost its share in the emerging EVs market.

Zacks Rank & Price Performance

Maxwell currently carries a Zacks Rank #3 (Hold).

Shares of the company have lost 13.6% in the past month compared with the industry’s fall of 9.9%.

Key Picks

Some better-ranked stocks in the same space are AU Optronics Corp (NYSE:AUO) , AVX Corporation (NYSE:AVX) and Kemet Corporation (NYSE:KEM) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AU Optronics delivered average positive earnings surprise of 141.07% in the last four quarters. The Zacks Consensus Estimate for current-year earnings has moved up 5.2% to 40 cents in the past 60 days.

AVX delivered average earnings surprise of 33.96% in the trailing four quarters. The Zacks Consensus Estimate for 2018 earnings has been revised 11.6% upward to $1.44 in the past 90 days.

Kemet came up with average beat of 30.59% in the preceding four quarters. The Zacks Consensus Estimate for 2018 earnings has been upwardly revised by 34.1% to $3.34 in the past 90 days.

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