NAPERVILLE, Ill. ( TheStreet) -- Broadwind Energy ( BWEN - Get Report) is plummeting on Friday after a weaker-than-expected earnings in the fourth quarter, and Broadwind management's expectation that the first half of 2010 will represent a trough point for the wind stock. Earlier this week, JPMorgan Chase ( BWEN - Get Report) initiated coverage of Broadwind with an outperform, as part of a thematic shift away from solar stocks and into the wind sector between now and 2012. To put the JPMorgan call in favor of wind in the proper perspective, JPMorgan said in its call that Broadwind would hit bottom in the first half of 2010. Broadwind shares fell by more than 20% on Friday through the early afternoon. Broadwind's trading level of 5.5 million shares on Friday was well above its average daily volume of trading below 500,000. The outlook that Broadwind management provided on Friday morning was the same outlook that the JPMorgan analyst provided: a bottoming in Broadwind shares in the first half of 2010. In the end, for investors who buy into the wind story, the freefall in Broadwind shares on Friday and the management outlook for a bottoming in the first half of the year indicates that the best entry point to buy into wind as an investment theme may be yet to come -- despite the fact that JPMorgan and Raymond James initiated coverage of Broadwind at an overweight in the weeks leading up to the fourth-quarter earnings. Both JPMorgan and Raymond James were among the securities syndicate in Broadwind's early 2010 public offering. Granted, just when the right moment to enter wind as an investment arrives -- if you believe in the wind theme -- is still unclear. In fact, that bottoming may have been taking place on Friday as Broadwind's pretty ugly fourth quarter earnings report led to the share freefall. The eternal question in investing is whether the damage will get worse before it gets better, or whether investors who wait to long to call a bottom will miss the rally. There were some ugly individual numbers in the Broadwind fourth-quarter report. Overall, the fourth-quarter Broadwind results represented a worse-than-expected performance and demand environment for wind energy, even amid general pessimism about the first half of 2010.
There was a $82.2 million fourth-quarter charge that stemmed from a revision in management's assessment of future cash flows to be generated from key customer contracts. Broadwind management expects that as a result of these charges, 2010 amortization will decline to $4.3 million from $10.4 million, and increase earnings per share by 6 cents in 2010. "Broadwind was significantly impacted by lower fourth-quarter purchases under our multi-year framework agreements. In addition, we believe lower revenues in our Logistics and Technical Services businesses were the result of lower wind turbine sales," said Broadwind CEO Cameron Drecoll. There were no earnings in the fourth quarter for Broadwind. The wind company reported a net loss of $92.6 million, or 96 cents per share, on revenue of $32.9 million, including the charge of $82.2 million. Excluding the one-time items, Broadwind had a net loss of $10.4 million, or 11 cents per share, versus a Street estimated loss of 7 cents per share on revenue of 46 million. Versus the prior year fourth quarter, Broadwind results were significantly lower in all segments due to weak demand and low capacity utilization. The JPMorgan analyst had also indicated that Broadwind's low utilization rate will ultimately be a driver of growth, and the utilization should also bottom in the first half of the year. CEO Drecoll tried to spin a positive forward-looking story for investors, and dealt directly with the issue of low sales and the one-time charge related to weak customer demand. "The good news is we are now seeing increases in orders from some of these same customers, and are actively engaged in negotiations on other new contracts. We remain well-positioned to capture the expected upswing in U.S. wind markets. Following a weak first half, we expect to regain traction in the second half of 2010, and exit the year positioned to expand market share and revenues in 2011."
The concentration of Broadwind's customer list continues to be a business risk. In 2009, six customers accounted for approximately 75% of Broadwind's total revenue, up from four customers in 2008. That said, wind continues to be a small market: Broadwind's commercial relationships with customers account for more than 97% of all wind turbine assembly in the US market. On the positive side, amid the poor sales environment and big one-time charges, Broadwind lowered sales expenses in 2009 by $6.7 million. Revenue from wind towers were $17.2 million in the fourth quarter of 2009, compared with $33.8 million in the fourth quarter of 2008. The segment reported a $1.9 million operating loss in the fourth quarter of 2009, or $1.2 million of reduced gross profit versus the previous year. Revenue from Broadwind's gearing segment was $9.7 million in the fourth quarter of 2009, compared with $28 million in the fourth quarter of 2008, down significantly due to weak demand from both wind energy and industrial customers. The segment reported an $85.3 million operating loss in the fourth quarter of 2009, including an $80.3 million non-cash intangible impairment charge. Revenue from Broadwind's Logistics segment was $0.9 million in the fourth quarter of 2009, compared with $3.6 million in the fourth quarter of 2008, a decrease in revenue caused by the weak demand in the wind energy industry and competitive pricing pressure. The segment reported a $2 million operating loss in the fourth quarter of 2009, versus a $0.7 million operating loss in the fourth quarter of 2008. -- Reported by Eric Rosenbaum in New York.