BUY HOLD SELL A+ A A- B+ B B- C+ C C- D+ D D- E+ E E- F Annual Dividend Rate SDAQ: HOLD HOLD RATING SINCE 11/12/2015 BUSINESS DESCRIPTION Energy Recovery, Inc. provides energy solutions to industrial fluid flow markets under the ERI, PX, Pressure Exchanger, PX Pressure Exchanger, AT, AquaBold, VorTeq, IsoBoost, and IsoGen names worldwide. The company operates through Water and Oil & Gas segments. Sector: Industrials Sub-Industry: Industrial Machinery Source: S&P Weekly Price: (US$) SMA (50) SMA (100) 1 Year 2 Years 16 14 12 10 STOCK PERFORMANCE (%) 3 Mo. 1 Yr. 3 Yr (Ann) Price Change 52.93-15.21 27.46 GROWTH (%) Last Qtr 12 Mo. 3 Yr CAGR Revenues 22.89 10.61 14.71 Net Income 394.64 316.54 36.51 EPS 400.00 333.33 35.72 RETURN ON EQUITY (%) Ind Avg S&P 500 Q3 2017 5.63 20.34 13.41 Q3 2016-3.04 18.14 11.79 Q3 2015-27.13 22.09 12.91 P/E COMPARISON Rating History HOLD Volume in Millions 2015 2016 2017 COMPUSTAT for Price and Volume, TheStreet Ratings, Inc. for Rating History RECOMMENDATION We rate () a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing nesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, compelling growth in net income and revenue growth. However, as a counter to these strengths, we also find nesses including a generally disappointing performance in the stock itself and premium valuation. 8 6 4 2 8 5 3 0 137.86 EPS ALYSIS¹ ($) Q1-0.16 Q2-0.06 Q3-0.01 2015 Q4 0.01 Q1-0.04 35.24 Ind Avg Q2 0.01 Q3-0.01 2016 = not available NM = not meaningful Q4 0.06 Q1-0.01 24.86 S&P 500 Q2-0.01 Q3 0.03 2017 1 Compustat fiscal year convention is used for all fundamental data items. HIGHLIGHTS reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, turned its bottom line around by earning $0.02 versus -$0.22 in the prior year. This year, the market expects an improvement in earnings ($0.23 versus $0.02). The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Machinery industry. The net income increased by 394.6% when compared to the same quarter one year prior, rising from -$0.58 million to $1.71 million. has underperformed the S&P 500 Index, declining 15.21% from its price level of one year ago. Looking ahead, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry. PAGE 1
SDAQ: PEER GROUP ALYSIS REVENUE GROWTH AND EBITDA MARGIN* Revenue Growth (TTM) KRNT -4% 14% UNFAVORABLE 4% CIR HDNG BRSS FSTR EBITDA Margin (TTM) HURC PKOH FAVORABLE BOOM LXFR 18% Companies with higher EBITDA margins and revenue growth rates are outperforming companies with lower EBITDA margins and revenue growth rates. Companies for this scatter plot have a market capitalization between $225.4 Million and $735.9 Million. Companies with or NM values do not appear. *EBITDA Earnings Before Interest, Taxes, Depreciation and Amortization. REVENUE GROWTH AND EARNINGS YIELD Revenue Growth (TTM) -4% 14% UNFAVORABLE FSTR -17.5% Earnings Yield (TTM) KRNT BOOM FAVORABLE HDNG OFLX BRSS CIR LXFR HURC PKOH 7.5% Companies that exhibit both a high earnings yield and high revenue growth are generally more attractive than companies with low revenue growth and low earnings yield. Companies for this scatter plot have revenue growth rates between -2.8% and 13.6%. Companies with or NM values do not appear. INDUSTRY ALYSIS The Machinery industry continues to experience consolidation, globalization, and cost containment with the biggest companies expected to continue to dominate and generate the most revenue. The challenges the industry faces include the surges in commodity costs, which lowers margins. The result of these commodity increases have been higher prices, which customers have generally seemed to absorb as surcharges have helped cover the difference, though there is no guarantee this will continue. Steel and copper in particular saw the highest increase in prices. Manufactures have been moving to lower cost areas for production in order to contain costs. This allows the company to achieve better margins and improve competitiveness. Additionally, another positive along with this is that it allows the company to be closer to the emerging demand base and thus its new customers. The three main segments of the machinery industry are flow control equipment, electrical equipment and industrial automation. The need for products from these groups is driven on a macro-level to a certain degree, which depends on the strength of the world economy as well as government funding. Geographically, the outlook for the industry remains positive in North America, Latin America, and Asia, with a neutral forecast for Europe. As with any industry that exports products, the machinery industry is helped by a er U.S. dollar and less competitive as the dollar strengthens. The machinery industry is not heavily regulated, though there has been an increased interest by the government to raise energy efficiency of electrical equipment. Along with improved efficiency, the products that will likely continue to support growth in the industry are wireless components and sensors - especially for use in detecting biological or chemical factors. Pump and valve technology will always be in demand in order to fulfill the ongoing need for the treatment of drinkable water and wastewater treatment. Finally, robotics orders have rebounded after suffering from the downturn in the automotive market. The key players in the industry include Caterpillar (CAT), Deere (DE), Illinois Tool Works (ITW), Cummins (CMI), Flowserve (FLS), and Ingersoll-Rand (IR). PEER GROUP: Machinery Recent Market Price/ Net Sales Net Income Ticker Company Name Price ($) Cap ($M) Earnings TTM ($M) TTM ($M) 9.65 517 137.86 58.68 3.85 CIR CIRCOR INTL INC 44.60 736 47.96 614.37 15.36 BRSS GLOBAL BRASS & COPPER HLDGS 32.45 711 15.99 1,442.40 44.70 OFLX OMEGA FLEX INC 64.53 651 42.45 99.98 15.32 KRNT KORNIT DIGITAL LTD 16.85 568 NM 116.13-0.83 PKOH PARK OHIO HOLDINGS CORP 42.70 535 18.09 1,353.70 29.30 LXFR LUXFER HOLDINGS PLC 13.71 369 21.42 421.30 17.00 BOOM DMC GLOBAL INC 21.45 317 NM 178.49-19.08 HURC HURCO COMPANIES INC 42.95 285 25.26 234.09 11.42 HDNG HARDINGE INC 17.45 226 34.90 314.54 6.38 FSTR FOSTER (LB) CO 21.80 225 NM 501.62-37.03 The peer group comparison is based on Major Industrial Machinery companies of comparable size. PAGE 2
SDAQ: Annual Dividend Rate COMPANY DESCRIPTION Energy Recovery, Inc. provides energy solutions to industrial fluid flow markets under the ERI, PX, Pressure Exchanger, PX Pressure Exchanger, AT, AquaBold, VorTeq, IsoBoost, and IsoGen names worldwide. The company operates through Water and Oil & Gas segments. It offers pressure exchanger energy recovery devices and turbocharger technologies for water desalination and oil and gas; AT turbochargers for low-pressure brackish, and high-pressure seawater reverse osmosis systems; and high-performance, high-efficiency, high-pressure, and circulation booster pumps. The company also provides VorTeq hydraulic fracturing system; IsoBoost energy recovery systems, such as hydraulic turbo chargers, and related controls and automation systems; and IsoGen energy recovery systems, including hydraulic turbines, and related controls and automation systems. In addition, it offers engineering, technical support, and training services; and preventive maintenance and support services, as well as reinstallation services. The company serves engineering, procurement, and construction (EPC) firms that design and build large desalination plants; original equipment manufacturers; oil companies; exploration and production companies; oilfield service companies; and EPC firms, which design and build oil and gas processing plants. It markets its products directly to customers through its direct sales organization, as well as through authorized independent sales agents. Energy Recovery, Inc. was founded in 1992 and is headquartered in San Leandro, California. 1717 Doolittle Drive San Leandro, CA 94577 USA Phone: 510-483-7370 Fax: 510-483-7371 http://www.energyrecovery.com STOCK-AT-A-GLANCE Below is a summary of the major fundamental and technical factors we consider when determining our overall recommendation of shares. It is provided in order to give you a deeper understanding of our rating methodology as well as to paint a more complete picture of a stock's strengths and nesses. It is important to note, however, that these factors only tell part of the story. To gain an even more comprehensive understanding of our stance on the stock, these factors must be assessed in combination with the stock s valuation. Please refer to our Valuation section on page 5 for further information. FACTOR SCORE Growth 3.0 out of 5 stars Measures the growth of both the company's income statement and cash flow. On this factor, has a growth score better than 50% of the stocks we rate. Total Return 2.5 out of 5 stars Measures the historical price movement of the stock. The stock performance of this company has beaten 40% of the companies we cover. Efficiency 2.0 out of 5 stars Measures the strength and historic growth of a company's return on invested capital. The company has generated more income per dollar of capital than 30% of the companies we review. Price volatility 2.0 out of 5 stars Measures the volatility of the company's stock price historically. The stock is less volatile than 30% of the stocks we monitor. Solvency 2.5 out of 5 stars Measures the solvency of the company based on several ratios. The company is more solvent than 40% of the companies we analyze. Income 0.5 out of 5 stars Measures dividend yield and payouts to shareholders. This company pays no dividends. THESTREET RATINGS RESEARCH METHODOLOGY TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates. While our model is quantitative, it utilizes both subjective and objective elements. For instance, subjective elements include expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings. Objective elements include volatility of past operating revenues, financial strength, and company cash flows. Our model gauges the relationship between risk and reward in several ways, including: the pricing drawdown as compared to potential profit volatility, i.e.how much one is willing to risk in order to earn profits; the level of acceptable volatility for highly performing stocks; the current valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's performance. These and many more derived observations are then combined, ranked, weighted, and scenario-tested to create a more complete analysis. The result is a systematic and disciplined method of selecting stocks. PAGE 3
SDAQ: Consensus EPS Estimates² ($) IBES consensus estimates are provided by Thomson Financial FINCIAL ALYSIS 's gross profit margin for the third quarter of its fiscal year 2017 is essentially unchanged when compared to the same period a year ago. The company has grown sales and net income during the past quarter when compared with the same quarter a year ago, however, it was unable to keep up with the growth of the average competitor within its industry. is extremely liquid. Currently, the Quick Ratio is 6.04 which clearly shows the ability to cover any short-term cash needs. The company's liquidity has decreased from the same period last year. 0.23 Q4 FY17 0.23 E 2017(E) 0.45 E 2018(E) During the same period, stockholders' equity ("net worth") has increased by 16.87% from the same quarter last year. Overall, the key liquidity measurements indicate that the company is very unlikely to face financial difficulties in the near future. INCOME STATEMENT Net Sales ($mil) 15.08 12.27 EBITDA ($mil) 2.42 0.27 EBIT ($mil) 1.54-0.65 Net Income ($mil) 1.71-0.58 STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. To learn more visit www.thestreetratings.com. BALANCE SHEET Cash & Equiv. ($mil) 94.39 96.26 Total Assets ($mil) 149.04 141.51 Total Debt ($mil) 0.03 0.04 Equity ($mil) 68.27 58.41 PROFITABILITY Gross Profit Margin 76.62% 73.88% EBITDA Margin 16.07% 2.16% Operating Margin 10.21% -5.33% Sales Turnover 0.39 0.37 Return on Assets 2.58% -1.25% Return on Equity 5.63% -3.04% DEBT Current Ratio 6.74 7.51 Debt/Capital 0.00 0.00 Interest Expense 0.00 0.00 Interest Coverage 1,540.00-654.00 SHARE DATA Shares outstanding (mil) 54 52 Div / share 0.00 0.00 EPS 0.03-0.01 Book value / share 1.27 1.12 Institutional Own % Avg Daily Volume 449,089 342,986 2 Sum of quarterly figures may not match annual estimates due to use of median consensus estimates. PAGE 4
SDAQ: RATINGS HISTORY Our rating for has not changed since 11/12/2015. As of 11/16/2017, the stock was trading at a price of which is 24.2% below its 52-week high of $12.73 and 57.4% above its 52-week low of $6.13. 2 Year Chart HOLD: $7.50 2016 $20 $15 $10 MOST RECENT RATINGS CHANGES Date Price Action From To 11/16/15 $7.50 No Change Hold Hold Price reflects the closing price as of the date listed, if available RATINGS DEFINITIONS & DISTRIBUTION OF THESTREET RATINGS (as of 11/16/2017) 43.95% Buy - We believe that this stock has the opportunity to appreciate and produce a total return of more than 10% over the next 12 months. 30.76% Hold - We do not believe this stock offers conclusive evidence to warrant the purchase or sale of shares at this time and that its likelihood of positive total return is roughly in balance with the risk of loss. 25.29% Sell - We believe that this stock is likely to decline by more than 10% over the next 12 months, with the risk involved too great to compensate for any possible returns. TheStreet Ratings 14 Wall Street, 15th Floor New York, NY 10005 www.thestreet.com Research Contact: 212-321-5381 Sales Contact: 866-321-8726 VALUATION HOLD. 's P/E ratio indicates a significant premium compared to an average of 35.24 for the Machinery industry and a significant premium compared to the S&P 500 average of 24.86. For additional comparison, its price-to-book ratio of 7.58 indicates a significant premium versus the S&P 500 average of 3.16 and a significant premium versus the industry average of 5.22. The price-to-sales ratio is well above both the S&P 500 average and the industry average, indicating a premium. Upon assessment of these and other key valuation criteria, proves to trade at a premium to investment alternatives within the industry. Price/Earnings 137.86 Peers 35.24 Premium. A higher P/E ratio than its peers can signify a more expensive stock or higher growth expectations. Price/Projected Earnings 21.69 Peers 21.98 Premium. A higher price-to-projected earnings ratio than its peers can signify a more expensive stock or higher future growth expectations. Price/Book 7.58 Peers 5.22 Premium. A higher price-to-book ratio makes a stock less attractive to investors seeking stocks with lower market values per dollar of equity on the balance sheet. Price/Sales 8.81 Peers 2.17 Premium. In the absence of P/E and P/B multiples, the price-to-sales ratio can display the value investors are placing on each dollar of sales. is trading at a significant premium to its industry. DISCLAIMER: Price/CashFlow 1152.93 Peers 19.39 Premium. The P/CF ratio, a stock s price divided by the company's cash flow from operations, is useful for comparing companies with different capital requirements or financing structures. Price to Earnings/Growth 0.13 Peers 1.11 Discount. The PEG ratio is the stock s P/E divided by the consensus estimate of long-term earnings growth. Faster growth can justify higher price multiples. trades at a significant discount to its peers. Earnings Growth lower higher 333.33 Peers 37.47 Higher. Elevated earnings growth rates can lead to capital appreciation and justify higher price-to-earnings ratios. is expected to have an earnings growth rate that significantly exceeds its peers. Sales Growth lower higher 10.61 Peers 7.78 Higher. A sales growth rate that exceeds the industry implies that a company is gaining market share. has a sales growth rate that significantly exceeds its peers. The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but TheStreet Ratings cannot guarantee its accuracy and completeness, and that of the opinions based thereon. Data is provided via the COMPUSTAT Xpressfeed product from Standard &Poor's, a division of The McGraw-Hill Companies, Inc., as well as other third-party data providers. TheStreet Ratings is a division of TheStreet, Inc., which is a publisher. This research report contains opinions and is provided for informational purposes only. You should not rely solely upon the research herein for purposes of transacting securities or other investments, and you are encouraged to conduct your own research and due diligence, and to seek the advice of a qualified securities professional, before you make any investment. None of the information contained in this report constitutes, or is intended to constitute a recommendation by TheStreet Ratings of any particular security or trading strategy or a determination by TheStreet Ratings that any security or trading strategy is suitable for any specific person. To the extent any of the information contained herein may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. Your use of this report is governed by TheStreet, Inc.'s Terms of Use found at http://www.thestreet.com/static/about/terms-of-use.html. PAGE 5