The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.By David Sterman NEW YORK ( TheStreet) -- The global energy picture is changing so fast that it's getting hard to keep up. In just the last five years, we've seen:
Millions of Italian homes were re-wired to use Echelon's electric meters, which contained controls that enabled the meter to wirelessly transmit information back to the utility. The system was known as advanced meter reading or AMR and, as I'll note in a moment, it has been radically upgraded. The company hoped to quickly secure additional major contracts and as they failed to materialize, shares started to grind lower. Shares had fallen to just $10 by 2007, but quickly spiked to $30 that year as sales were rising at a few key clients and a range of pilot programs with other utilities looked quite promising as well. Management expected those programs to become full-fledged rollouts within a few years, but the economic downturn led utilities to slash many discretionary investments. Shares have been on a downward drift ever since.
Though sales shot up 40% in 2011 to $156 million, management now concedes ongoing delays will keep sales from rising sharply again in 2012. Analysts expect sales to grow just 8% this year to around $170 million and even that forecast may prove to be optimistic. Many investors in this stock have simply had enough. Yet behind the scenes, the seeds of a rebound have been planted. Over the next 12 to 18 months, Echelon appears poised to land another big fish or two. This time, it won't be from a major utility in the U.S. or Europe. These two regions appear paralyzed at the moment, making few major bold moves to address the changing global energy picture. Only Duke Energy ( DUK) and Finland's Fortum are actively working on rollouts with Echelon right now. Instead, China and Brazil appear to hold the keys to an upturn. These countries aren't simply looking to deploy the AMR's that Italy's Eni used. They aim to do much more, with a system developed by Echelon that entails advanced meter infrastructure. So what's an AMI? It's a communications and control system that can help utilities save energy, reduce power when needed and improve reliability. Let me provide an example . . .
There are an increasing number of electric cars hitting the road and each one needs to be plugged in at night to recharge the batteries. Utilities have grown concerned that too many cars being charged at once will overwhelm the system. So they want to be able to know what is being charged and they want to have the ability to cut the juice to specific devices when demand peaks. The car charging could be delayed if needed until consumers are done with washing machines, dishwashers and other appliances. We are starting to see this happen in places such as California, where utilities have signed up many homes to have their power cut voluntarily when the risk of summer blackouts can occur. The interest from Brazil and China is different. These countries also aim to better identify when electricity is being pilfered and need an AMI to truly control all the juice that flows.
Echelon has also held discussions with dozens of other utilities around the globe, and you can look for new customer wins later his year as well. As a final catalyst, the U.S. and Europe have been paralyzed by their economic woes, but as these two major economies start to stabilize, the willingness to make upfront investments with long-term payoffs may soon be back in vogue. On its most recent conference call, management noted that Echelon's pipeline of new business leads is three times larger than a year ago. Converting these leads into contracts could be a solid catalyst for shares. Action to Take --> I will buy 1,000 shares (roughly worth $4,700) two trading days after you read this. I suggest investors put in a stop-loss at $4.25, in the event that a market rout sucks this stock down with the pack. Shares can be bought under $7. Also see: