Israel's Ormat: Power From Unlikely Sources

Israel's Ormat Technologies had a remarkable year in 2005 thanks to climbing oil prices and a wave of favorable regulation.

Shares of the geothermal energy producer rose 60% in 2005, and have more than doubled since the company went public in November 2004. Analysts on average are expecting to see a 5.5% rise in the company's profit in 2005 when it reports its full-year earnings on Wednesday.

Shares of Ormat are currently trading at 55.9 times the 2006 earnings estimates, according to Thomson Financial data, compared with an average energy industry multiple of 25.91. The rich valuation could prove durable, however, if energy prices don't collapse. Analysts surveyed by Thomson expect Ormat's per-share earnings to rise by 25% in 2006 and 45% in 2007.

Ormat produces clean electricity through its geothermal power plants. The company drills and extracts hot water from geological depths near the earth's core, which heats other liquids, releases steam and creates electricity. The water is then pumped back into the ground and used again.

"After President Bush's last State of the Union address about America being too dependent on oil, and the following legislation, together with Sweden's commitment to convert its entire energy system to renewable sources, it has become clear that the direction of the western world is toward renewable energy," says Yuval Ben Zeev, analyst at the Israeli brokerage firm Clal Finance Batucha who covers Ormat.

"Not only is Ormat one of the most important securities in Israel, it is also the leading player in the world in geothermal energy production as the manufacturer, owner and subcontractor of these plants."

Ormat's geothermal power plants already feed power grids in many locations, including Nevada, California, New Zealand and the Philippines (the technology can operate only in the "Rim of Fire," the area that stretches from South East Asia through Hawaii to California and Guatemala, where the ground is shallow and closest in depth to the core.)