Silver Spring falls as analyst eyes US market
NEW YORK (AP) — Shares of Silver Spring Networks tumbled in Monday afternoon trading after an analyst said that the core U.S. advanced metering infrastructure market is likely to decline through 2014.
THE BACKGROUND: Silver Spring, based in Redwood City, Calif., provides a networking platform and services that help utilities upgrade their power grid infrastructure.
THE SPARK: Pacific Crest Securities analyst Ben Schuman said in a client note that the pace of big metering infrastructure deals has been slowing in the U.S. since 2010, and associated revenue is likely to slow through next year.
Schuman said that Silver Spring is still very dependent on that network revenue.
THE ANALYSIS: "We estimate Silver Spring has a backlog of over $800 million (including recent deals with CPS Energy and Singapore Power), but the duration of the backlog extends beyond 2020 and does not guarantee stable growth," Schuman wrote.
The analyst said that Silver Spring can offset declining revenue in the U.S. by striking deals in underpenetrated markets like Japan, the U.K. and Brazil. The company can also sell value-added services to its existing installed base, he added.
The analyst said that he likes the company long-term, but said its current stock price doesn't reflect the risk of near-term volatility and leave room for upside.
Schuman started coverage of Silver Spring with a "Sector Perform" rating.
Jeffrey Osborne of Stifel Nicolaus began coverage with a "Buy" rating and $22 price target. He thinks that global advanced metering infrastructure deployments are still in the somewhat early stages, and he sees significant opportunities in the U.S., European Union, Latin America and Asia.
Osborne said that the company's more than $800 million backlog gives it good visibility for 2013 and 2014, with many trials and pilots in the pipeline giving it the ability to increase its backlog even more.
A representative for Silver Spring did not immediately respond to an email seeking comment.
SHARE ACTION: Silver Spring Networks Inc. fell $1.61, or 8.4 percent, to $17.60 in afternoon trading.