Evercore ISI Starts Energy Recovery (ERII) at Buy
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Evercore ISI initiates coverage on Energy Recovery (NASDAQ: ERII) with a Buy rating and a price target of $23.00.
Analyst James West commented, "In most applications, ERII's PX technology (and its derivatives) offer quick payback periods for customers thanks to reductions in opex, capex, and downtime; as a result, ERII is able to generate significant margins with minimal capex. The PX was initially deployed for reverse osmosis water desalination (SWRO) and the technology has demonstrated its efficacy and reliability through the installation of over 17,000 units globally. Large-scale desalination projects remain ERII’s largest revenue source; however, successful deployment of the VorTeq missile should see licensing revenue associated with pressure pumping exceed desal revenues by 2019, depending on the number of active SLB frac spreads and the adoption rate. We derive our $23 PT by summing the cash flows of its core desalination business on a standalone basis, the cash flows associated with SLB’s adoption of the VorTeq product, and the company’s net cash position. We ascribe no value to the remainder of the company’s products and addressable markets, including their related costs, but view them as free options."
Shares of Energy Recovery closed at $15.23 yesterday.
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