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CUI Reach final, CWEN 1Q20 schedule, plus CVA & COVID thoughts ?3

08:47 07-Apr-20


CUI Global has closed on Reach as of April 1, 2020 and provided the following details:

CUI will also be paying certain key employees of Reach base salaries of up to $250K annually.  CUI's CEO says the transaction "will be immediately accretive, providing increased revenues, operating margins, net earnings and significantly enhancing our ability to penetrate the renewable (solar) energy market."  I can see this working, but have to note that CUI has bet the company on performance over the next three years.  

With the current state of energy markets, that's going to be an interesting path.  I note that natural gas, currently at $1.78, has been steadier and more resilient than oil as of late.  Although the continued crash in rig counts shows the impact to shale, it still seems possible that gas and solar could both be winners in a restructured energy world. 

That's the $131.4M question for Covanta.  I have acknowledged that there will be a lot of pressure on the company to cut the dividend, and I think the market is already pricing that in to a large extent after a downgrade from Brian Lee, at Goldman.  I have little respect for most analysts, but he is one of the few who actually understood UDC's strengths, weaknesses, and technology.  Still, the long development cycle and reliable income for Covanta's business may enable management to continue looking beyond even the current financial crunch.  All I can say is that CVA stock has always been vulnerable to bad press and manipulation.  If that's all this is, we're looking at 100% or more upside.

We'll probably know in a little over a month, and with new COVID-19 cases possibly beginning to top-out, a lot can still change in that time.  Actual treatments will take much longer, and restrictions should be here for at least another month or so.  Here's my table of selections on how the virus is playing out so far:

Country Pop. Cases Case% Deaths Pop Mortality Case Mort Density Med. Age Urban
U.S. 331,002,651 368196 0.1112% 10986 0.0033% 2.9837% 36 38 83%
Spain 46,754,778 136675 0.2923% 13341 0.0285% 9.7611% 94 45 80%
Italy 60,461,826 132547 0.2192% 16523 0.0273% 12.4658% 206 47 69%
Germany 83,783,942 103375 0.1234% 1810 0.0022% 1.7509% 240 46 76%
France 65,273,511 98984 0.1516% 8926 0.0137% 9.0176% 119 42 82%
Iran 83,992,949 60500 0.0720% 3739 0.0045% 6.1802% 52 32 76%
U.K. 67,886,011 52279 0.0770% 5385 0.0079% 10.3005% 281 40 83%
Belgium 11,589,623 20814 0.1796% 1632 0.0141% 7.8409% 383 42 98%
Turkey 84,339,067 30217 0.0358% 649 0.0008% 2.1478% 110 32 76%
S. Korea 51,269,185 10331 0.0202% 192 0.0004% 1.8585% 527 44 82%
Netherlands 17,134,872 18926 0.1105% 1874 0.0109% 9.9017% 508 43 92%
Sweden 10,099,265 7206 0.0714% 477 0.0047% 6.6195% 25 41 88%
NYC 8,300,000 131815 1.5881% 3485 0.0420% 2.6439% 10682 35.8 100%
S. Africa 59,308,690 1686 0.0028% 12 0.0000% 0.7117% 49 28 67%
Canada 37,742,154 16667 0.0442% 322 0.0009% 1.9320% 4 41 81%
Finland 5,540,720 2176 0.0393% 27 0.0005% 1.2408% 18 43 86%
Ukraine 43,733,762 1319 0.0030% 38 0.0001% 2.8810% 75 41 69%
Japan 126,476,461 3906 0.0031% 92 0.0001% 2.3554% 347 48 92%

Cases and deaths are from 7-Apr-2020 from here and population data from here, except NYC.  Those who wish to keep up to date can view this page, though it lacks some of the population characteristics.  However, important to recognize that financial and real world recoveries are on different schedules in different industries.  I can only reiterate that there is no escaping the debt, and to be prepared for an up-hill roller coaster.

A lengthy COVID-19 scenario makes AES & CWEN(A) amongst the safest options out there, provided nothing blows up with the PG&E deal over the next two months.  I've intentionally ignored the noise on that front.  Clearway will report first quarter earnings on May 7th, against average analyst expectations for 7 cents of EPS from $260M of revenue increasing to $350M this quarter.  As a reminder, assuming the PG&E deal goes through by the June 30 deadline, Clearway's dividend should rebound to at least 32 cents in the second half, implying a $21.33 price target for CWEN(A).  The company would also have an extra $70M or so of cash freed for new growth. There are potentially more profitable investments out there, but increased reward comes with higher risk.