Update Ormat Technologies (ORA)

Ormat Technologies (ORA) has been on a very slow recovery track since it hit a low of $27.76 on March 29. The shares were up about 12% as of 2 p.m. ET on April 22, 2010, to $31.08. That still leaves the stock a lot of work to do before it gets back to the $41.08 where I bought shares for Jubak’s Picks on November 17, 2009.

Ormat Technologies shares crashed on a February 23 announcement that it would restate its financial statements for all of 2008. The company had concluded that its accounting treatment that capitalized certain exploration and development cost was inappropriate and that the company, at the SEC’s urging, expense these costs. That will have the effect of moving these costs onto the company’s books much more quickly.

The news generated a rush to court with lawyers filing class action suits in behalf of shareholders charging that the company, in the language of one suit, “recklessly disregarded that their public statements concerning Ormat’s business, operations and prospects were materially false and misleading. Specifically, defendants made false and/or misleading statements and/or failed to disclose: (1) that the Company was improperly continuing to capitalize costs for individual projects after Ormat had decided to abandon further exploration and development of individual projects instead of expensing those costs in the period in which any such determination was made; (2) that, as a result, the Company’s financial results were overstated during the Class Period; (3) that the Company’s financial results were not prepared in accordance with Generally Accepted Accounting Principles (GAAP); (4) that the Company lacked adequate internal and financial controls; and (5), as a result of the above, that the Company’s financial statements were materially false and misleading at all relevant times.”

Nothing good for the share price in either Ormat Technologies news or in the flurry of lawsuits. I take the law suits seriously. After all in the period that the suits name, May 6, 2008 to February 24, 2010, the share price fell from $50 to $22. Multiply that by the 45 million shares outstanding and you’ve got $900 million in losses to investors. That’s a lot for a company with annual sales of just $415 million.

But most class action suits never go to trial, getting settled for a payment far below the alleged damages. In those that do go to trial the final award is seldom equal to the alleged extent of shareholder losses.

Especially when as in the current situation, part of the decline in the stock was due to a general collapse of the stock market. Remember that the stock market didn’t hit a bottom until March 2009. Good luck collecting on the drop in Ormat’s share price from May 2008 through March 2009.

And then there are sound fundamental business reasons for the decline in the company’s stock since May 2008. Fundamental problems that increasingly seem behind the company.

Buy Ormat Technologies (ORA)

Procrastination and mindless delay can create profits for investors.

The example I use in my book The Jubak Picks is the environment.

 It’s not that we don’t recognize environmental problems; it’s just that it takes so long for us to do anything about them. And then, of course, we rush to find the fastest fix. That delay and then the rushed fix shapes what technologies, what industries, what companies profit from whatever we do to protect the environment—and what technologies and companies get filed under “Great idea. Maybe next universe.”

Well, guess what, we’re doing it again. Environmental delay, that is. And the delay is rearranging where and when the profits lie among environmental industries.

One winner from delay is Ormat Technologies (ORA). The company’s has built, either for itself or for other owners, about 10% of global installed geothermal power capacity. The 27% of the company’s revenues that don’t come from geothermal come from selling or operating power plants that produce electricity from “waste” heat. The company’s recovered energy generation clients include oil pipeline companies, cement makers, and utility companies. (Ormat’s parent company Ormat Industries trades on the Tel Aviv stock exchange, but Ormat Technologies trades on the New York Stock Exchange.)

I think both those technologies are clear winners from global climate change delay.