Energy Conversion Devices (ENER)Griffin Voth2-23-2006

Company Profile

• Energy Conversion was co-founded by Stanford R. Ovshinsky and Iris M. Ovshinsky in 1960.

• Based in Rochester Hills, Michigan. • Engages in the invention, engineering,

development, and commercialization of materials, products, and production technology in the fields of alternative energy technology and information technology.

• 746 employees

Product Offering

• 3 business segments, 4 core commercial businesses • Competitive products: Photovoltaic (PV) Solar panels

and nickel-metal-hydride (NiMH) batteries• FLASH memory replacement, Phase Change Memory• Fuel Cell development

Financial Highlights

Trend Analysis

• Market Price $45.02• 52 Week High: $57.84• Outperforming SPX by

large amount.

Investment Pros

• Recent presidential visit to Ovonics solar division touting future of solar technology.

• Current energy costs• Zero Long term debt, and very little

short term debt.• FLASH memory replacement.

Investment Cons

• Inconsistent Earnings• Negative Earnings• Old management

Industry Profile

ENER AFCO FCEL INDUSTRY

Market Cap: 1.39B 308.92M 485.99M 188.54M

Employees: 746 625 335 284

Qtrly Rev Growth: -74.60% 11.10% -10.30% 17.50%

Revenue (ttm): 86.24M 191.54M 30.37M 70.54M

Gross Margin (ttm): 16.18% 26.46% -111.58% 44.19%

EBITDA (ttm): -24.70M 3.35M -63.31M 5.11M

Operating Margins: -37.65% -4.91% -230.09% 6.82%

Net Income (ttm): -30.11M -14.78M -73.01M 2.00M

EPS (ttm): -1.032 -0.985 -1.539 0.22

P/E (ttm): N/A N/A N/A 25.7

PEG (5 yr expected): N/A 2.57 N/A 1.48

P/S (ttm): 15.4 1.65 15.99 2

Company Growth

• Providing Batteries for Saturn VUE Green Line Hybrid SUV

• Licensing Agreement with Samsung to Develop PCM (Phase Change Memory)

• New 25Mw Facility• Further Capacity Planed• Changing Company Focus to Bring

Commercialized Products to Market.

Valuation Summary

• Company Pays no Dividends• Inconsistent Earnings• Mean target price $51.33

CAPM

• Risk Free 4.606%• Mkt Premium 6.394%• E(r) 13.38% – 14.20%

ENER BETAy = 1.373x - 0.007

R2 = 0.1115

-1

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1

-0.2 -0.15 -0.1 -0.05 0 0.05 0.1

DCF Model

2006 2007 2008 2009 2010

Sales $ 65,449,279.98 $ 82,466,092.77 $ 103,907,276.90 $ 130,923,168.89 $ 164,963,192.80

COGs $ 53,997,379.80 $ 56,697,248.79 $ 59,532,111.23 $ 62,508,716.79 $ 65,634,152.63

Cap Exps $ (3,369,352.68) $ (3,638,900.89) $ (3,930,012.97) $ (4,244,414.00) $ (4,583,967.12)

Net $ 8,082,547.50 $ 22,129,943.09 $ 40,445,152.70 $ 64,170,038.10 $ 94,745,073.05

Net @ Present $ 7,077,723.15 $ 16,969,572.71 $ 27,158,288.31 $ 37,732,320.72 $ 48,784,646.24

Sumation $ 137,722,551.14

Value of Perp $ 1,528,886,123.07

Total Value $ 1,666,608,674.20

Shares Outstanding 30,880,000.00

Value Per Share $ 53.97

Valuation Conclusion

• Averaging 3 Sales forecasts (22%-28%) Yields $49.47

• Large Feasible Range• Dependent on Sales Strength

Takeaways

• Huge Potential• $13 Off 52 Week High• Good Time to Buy on Weakness• Buy Under $45