Ahead Of The Bell: Energy Recovery

HARTFORD, Conn. (AP) — Energy Recovery Inc. will improve its position as a market leader and stands to benefit from cost savings with its purchase of Pump Engineering LLC, an analyst said Thursday as he upgraded his investment rating on the California company.

Energy Recovery, which develops water desalination devices, said Wednesday it agreed to buy Pump Engineering LLC for $25.7 million in cash and stock. Pump Engineering, based in New Boston, Mich., makes centrifugal turbine desalination equipment.

Energy Recovery said the acquisition fits with its growth strategy of expanding its products and entering new markets.

Analyst J. Michael Horwitz Jr. of R.W. Baird & Co. upgraded the San Leandro, Calif., company to "Outperform" from "Neutral."

The purchase increases Energy Recovery's market share to about 75 percent, and he is now less concerned about competition from Pump Engineering, he said.

"Not only does the move solidify ERII's market-leading position, but (it) also provides potential synergies and opens new markets," he said in a note to clients.

Pump Engineering offers complementary technology that will expand the customer base, Horwitz said. It offers customers lower upfront costs and typically competes in markets sensitive to those costs, he said.

"We think this product line is complementary to ERII's technology," Horwitz said.

Janney analyst Debra G. Coy said Energy Recovery has been evaluating strategic acquisitions since it went public in 2008. The firm had $78 million in cash and restricted cash as of September, "ready to be put to use," she said in a client note.

Shares of Energy Recovery closed Wednesday at $5.70.

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