Energy: Alternative Energy

Lowering Price Target

AMERICAN SUPERCONDUCTOR CORP. (AMSC: $24.68) Rating: Buy
April 6, 2011 Price Target: Old - $45.00; New - $20.00

Market Data Largest Customer Has a Funny Way of Negotiating,

12-18 Month Price Target $20.00
52-Week Range $38.88 - $21.70 But They Both Need Each Other
ADTV - 90Day (MM) 920.1
Market Cap ($MM) $1,251.3 What Is It Worth if Sinovel Went Away?
Shares Out (MM) 44.8
Public Market Float (MM) 42.2
Dividend NA
Summary
EPS ($) We are lowering our estimates and price target on American Superconductor
(AMSC) to account for an abrupt and massive pushout of business. AMSC
FY MAR 2011 2012 2013
released the news last night that its largest customer had declined the last
Estimate Previous Current Previous Current
Q1 $0.28A $0.28 $(0.04)E $0.47 $0.27E
shipment in the fulfillment of its contract and was 90 days delinquent in paying
Q2 $0.32A $0.28 $0.06E $0.49 $0.29E its bills. This customer accounted for 75% of revenue leading up to this quarter.
Q3 $0.40A $0.41 $0.23E $0.58 $0.35E We've lowered our revenue estimates by nearly 50% and pushed our expected
Q4 $(2.50)E $0.40 $0.25E $0.72 $0.47E fiscal 2012 earnings into fiscal 2013. We rate AMSC shares Buy with a new
YEAR $(1.50)E $1.37 $0.49E $2.26 $1.37E
EPS is non-GAAP. For GAAP EPS see attached model. price target of $20 per share, down from $45.
Operating Cash Flow Key Points
FY MAR 2011 2012 2013 ■
Largest customer, Sinovel, stops AMSC trucks at the gate. Sinovel
Estimate Previous Current Previous Current
YEAR (18.45)E 36.33 20.89E 53.51 35.85E accounted for 75% of all AMSC revenue in the nine months leading up to this
fiscal quarter and it abruptly went to zero as it sent away a large delivery of
Valuation Ratio
components that had already left the AMSC loading dock. The shipment was
FY11 FY12 FY13
P/E NM 50.4x 18.0x
primarily components for the legacy 1.5MW turbines, which we have
PEG NM 0.5x 0.2x previously suggested was going to be an issue as it was being displaced by
EV/S 2.8x 2.9x 1.6x 3MW and larger wind turbines.
EV/EBITDA NM 41.2x 14.6x ■
Leverage Ratio 0.0x 0.0x 0.0x No satisfying answers came out of the discussion we had with
EV/FCF NM 33.2x NM management. Management said it was in ongoing negotiations to resolve
FCF Yield NM 2.4% NM both the shipment and receivable issues. There did not appear to be an issue
P/FCF (8.3)x 41.2x (22.8)x
with either the wind market or Chinese financing sources. We do know that
Financial Data the market is moving to larger wind turbines and we have to assume this
FY11 FY12 FY13 product transition is simply far more abrupt, it's a negotiating tactic, or both.
Revenue $353.9E $342.0E $645.0E That said, we suspect the Sinovel relationship has to be handled as if this
EBITDA (83.0)E 24.5E 69.3E
EBITDA Margin (23.0)%E 7.0%E 11.0%E would happen again.
FCF(Mil) $(150.4)E $30.4E $(54.8)E ■
AMSC is strategically important to Sinovel and AMSC needs the
BV/Share $7.98E $8.14E $9.51E
CapEx 40.0E 55.0E 55.0E business. But what if it went away? Sinovel was $235 million of revenue in
Balance Sheet fiscal 2011. All 16 other customers could represent about $500 million in
revenue in 2-3 years. Discounting that to today, that could be worth $250
FY11 FY12 FY13
Cash $151.0E $106.3E $66.6E
million. If we add in $300 million for the value of the superconductor
Current Assets $316.0E $276.3E $371.6E business, that puts an approximate floor value for AMSC of $11 stock.
PPE $110.0E $150.0E $200.0E ■
Total Assets $526.0E $626.3E $771.6E
Leads to us lowering estimates and a large charge. We've assumed that the
Current Liabilities $120.0E $185.0E $250.0E inventory overhang takes nearly three quarters to work through. We've cut our
Total Debt – – – expectations for 1.5MW wind turbine components by 40% with components
Total Liabilities $135.0E $210.0E $285.0E for 3MW and 5MW making up the difference, so Sinovel business should be
Total SOE and Liab. $526.0E $626.3E $771.6E
flat year-over-year. We've cut margins to assume renegotiated contacts,
written off $200 million in receivables, inventory, and development costs, and
pushed earnings out 12 months.
■
Valuation. Without Sinovel, the underlying value of the company we
calculate is $11. But Sinovel should come back at some point, and when it
does, the shares are likely to rise, and our DCF, which assumes Sinovel comes
back after six months, gives us a value of $20. The balance sheet takes a hit
but two years out, it is still well funded. We reiterate our Buy rating and $20
price target.

Theodore O'Neill • 212.402.2054 • toneill@wundernet.com Wunderlich Securities, Inc.

60 East 42nd Street, Suite 1007
New York, NY 10165

For Required Disclosures and Reg AC, please see page 4 of report
FINRA/SIPC
American Superconductor Corp. April 6, 2011

Figure 1: American Superconductor Corp. - Income Statement

($ in thousands, except per share)

March year end 2009 2010 2011E 2011E 2012E 2012E 2013E 2013E
Year Year Q1 Q2 Q3 Q4E Year Q1E Q2E Q3E Q4E Year Q1E Q2E Q3E Q4E Year

Power systems 168,008 304,276 94,928 98,540 112,114 39,000 344,582 49,000 69,000 99,000 102,960 319,960 113,256 118,919 130,811 156,973 519,958
Superconductors 14,747 11,679 2,281 2,989 2,079 2,000 9,349 4,000 4,000 4,000 10,000 22,000 20,000 25,000 35,000 45,000 125,000
Total revenue $182,755 $315,955 $97,209 $101,529 $114,193 $41,000 $353,931 $53,000 $73,000 $103,000 $112,960 $341,960 $133,256 $143,919 $165,811 $201,973 $644,958
Growth 63% 73% 33% 36% 42% -53% 12% -45% -28% -10% 176% -3% 151% 97% 61% 79% 89%

Cost of Goods 130,882 200,977 58,224 60,226 67,709 36,900 223,059 39,750 51,100 66,950 73,424 231,224 86,616 93,547 107,777 131,282 419,223
Gross Profit 51,873 114,978 38,985 41,303 46,484 4,100 130,872 13,250 21,900 36,050 39,536 110,736 46,640 50,372 58,034 70,690 225,735
Gross Margin 28.4% 36.4% 40.1% 40.7% 40.7% 10.0% 37.0% 25.0% 30.0% 35.0% 35.0% 32.4% 35.0% 35.0% 35.0% 35.0% 35.0%

Research and development $19,675 $23,593 $7,335 $7,857 $9,057 $8,000 $32,249 $9,000 $10,000 $10,000 $10,000 $39,000 $13,000 $14,000 $15,000 $17,000 $59,000
% of total revenue 10.8% 7.5% 7.5% 7.7% 7.9% 19.5% 9.1% 17.0% 13.7% 9.7% 8.9% 11.4% 9.8% 9.7% 9.0% 8.4% 9.1%
SG&A $37,516 $50,446 $15,183 $17,127 $15,564 $16,000 $63,874 $15,000 $15,000 $14,000 $16,000 $60,000 $18,000 $20,000 $21,000 $22,000 $81,000
% of total revenue 21% 16% 16% 17% 14% 39% 18% 28% 21% 14% 14% 18% 14% 14% 13% 11% 13%
Amortization and restructuring $2,016 $1,827 $386 $374 $393 $500 $1,653 $500 $500 $500 $500 $2,000 $500 $500 $500 $500 $2,000
% of total revenue 1% 1% 0% 0% 0% 1% 0% 1% 1% 0% 0% 1% 0% 0% 0% 0% 0%
Total Operating Expenses 59,207 75,866 22,904 25,358 25,014 24,500 97,776 24,500 25,500 24,500 26,500 101,000 31,500 34,500 36,500 39,500 142,000

Operating Income (7,334) 39,112 16,081 15,945 21,470 (20,400) 33,096 (11,250) (3,600) 11,550 13,036 9,736 15,140 15,872 21,534 31,190 83,735
Operating Margin -4.0% 12.4% 16.5% 15.7% 18.8% -49.8% 9.4% -21.2% -4.9% 11.2% 11.5% 2.8% 11.4% 11.0% 13.0% 15.4% 13.0%

Total Other Items (566) (2,356) 346 2,639 2,309 (200,000) (194,706) (200) (200) (200) (200) (800) 0 0 0 0 0
Pre-Tax Income (7,900) 36,756 16,427 18,584 23,779 (220,400) (161,610) (11,450) (3,800) 11,350 12,836 8,936 15,140 15,872 21,534 31,190 83,735
Pre-Tax Margin -4.3% 11.6% 16.9% 18.3% 20.8% -537.6% -45.7% -21.6% -5.2% 11.0% 11.4% 2.6% 11.4% 11.0% 13.0% 15.4% 13.0%
Taxes (benefit) 8,735 20,508 7,257 8,596 7,775 (88,160) (64,532) (4,580) (1,520) 4,540 5,134 3,574 6,056 6,349 8,613 12,476 33,494
Tax Rate -110.6% 55.8% 44.2% 46.3% 32.7% 40.0% 39.9% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0%

Net Income (loss) ($16,635) $16,248 $9,170 $9,988 $16,004 ($132,240) ($97,078) ($6,870) ($2,280) $6,810 $7,702 $5,362 $9,084 $9,523 $12,920 $18,714 $50,241
Net Margin -9.1% 5.1% 9.4% 9.8% 14.0% -322.5% -27.4% -13.0% -3.1% 6.6% 6.8% 1.6% 6.8% 6.6% 7.8% 9.3% 7.8%

EPS, as reported ($0.39) $0.36 $0.20 $0.22 $0.33 ($2.59) ($1.98) ($0.13) ($0.04) $0.13 $0.15 $0.10 $0.18 $0.19 $0.25 $0.37 $0.98
EPS for First Call ($0.07) $0.70 $0.28 $0.32 $0.40 ($2.50) ($1.50) ($0.04) $0.06 $0.23 $0.25 $0.49 $0.27 $0.29 $0.35 $0.47 $1.37
Diluted Shares Outstanding 42,718 45,322 45,983 46,217 48,418 51,103 49,000 51,113 51,123 51,143 51,163 51,136 51,173 51,183 51,193 51,203 51,188

Sources: company reports and Wunderlich Securities, Inc.

Theodore O'Neill • 212.402.2054 • toneill@wundernet.com Wunderlich Securities, Inc.

2
American Superconductor Corp. April 6, 2011

Figure 2: American Superconductor Corp. - Balance Sheet

($ in thousands, except per share)

March year end FY2013E FY2012E FY2011E FY2010 FY2009 FY2008

Cash per share $1.30 $2.08 $3.08

Balance sheet
Current Assets
Cash and S.T.I. $66,569 $106,328 $150,966 $142,063 $109,929 $106,232
Accounts receivable 140,000 80,000 80,000 62,203 50,103 37,108
Inventories 120,000 65,000 65,000 35,858 35,129 10,907
Other assets 45,000 25,000 20,000 22,870 17,345 19,072
Total Current Assets 371,569 276,328 315,966 262,994 212,506 173,319

Net PP&E 200,000 150,000 110,000 64,315 54,838 54,308

Other non-current assets 200,000 200,000 100,000 72,875 41,762 33,607
Total Assets $771,569 $626,328 $525,966 $400,184 $309,106 $261,234

Current Liabilities
Accounts payable + Acc. Exp. $200,000 $135,000 $95,000 $84,319 $60,253 $38,356

Other current liabilities 50,000 50,000 25,000 19,970 21,066 10,629

Total current liabilities 250,000 185,000 120,000 104,289 81,319 48,985

Long Term Debt 0 0 0 0 0 0

Other non-current 35,000 25,000 15,000 14,930 5,926 3,797
Total Liabilities 285,000 210,000 135,000 119,219 87,245 52,782

Stockholders' Equity
Preferred stock
Total stockholders' equity 486,569 416,328 390,966 280,965 221,861 208,452
Total Liabilities and equity $771,569 $626,328 $525,966 $400,184 $309,106 $261,234

Sources: company reports and Wunderlich Securities, Inc.

Theodore O'Neill • 212.402.2054 • toneill@wundernet.com Wunderlich Securities, Inc.

3
American Superconductor Corp. April 6, 2011

Disclosures:
Analyst Certification
I Theodore O'Neill, hereby certify that the views expressed in this research report accurately reflect my personal views about the subject companies and their underlying
securities. I further certify that I have not and will not be receiving direct or indirect compensation in exchange for expressing the specific recommendation(s) in this
research report.

Valuation/Risks
■ Our $20 price target is based on a four-stage DCF that ends with terminal growth rates slowing to GDP and a 15% discount rate.
■ Risks include, but are not limited to, impact to margins on sales of superconductors and the loss of its largest customer.

Company-specific disclosures:
Wunderlich Securities makes a market in the shares of American Superconductor Corp..

General disclosures:

Prices are as of the close of 04/05/11.

Ratings Distribution (in Percentages) & Investment Banking Disclosure Chart Information

Ratings Distribution & Investment Banking Disclosure

Rating Count Ratings Distribution* Count Investment Banking**

Buy -rated 108 65.50 13 12.04
Hold -rated 54 32.70 4 7.41
Sell -rated 3 1.80 0 0.00

* Percentage of all Wunderlich-covered stocks assigned an equivalent Buy, Hold, or Sell rating.
** Percentage of companies within Wunderlich-rated Buy, Hold, and Sell categories for which Wunderlich or an associated firm provided investment banking services within the
past 12 months.

Rating System:
There are three rating categories within the Wunderlich Securities Investment Rating System: Buy, Hold, and Sell. The rating assigned to each company is based on the
following criteria.
Buy – a security which at the time the rating is instituted or reiterated indicates an expectation of a total return of greater than 20% over the next 12-18 months.
Hold - a security which at the time the rating is instituted or reiterated indicates an expectation of a total return of plus or minus 5% over the next 12-18 months.
Sell – a security which at the time the rating is instituted or reiterated indicates an expectation of a negative total return of greater than 10% over the next 12-18 months.
The analyst(s) who prepared this report may be compensated in part from a bonus pool that is partially funded by fees received by Wunderlich Securities for providing
investment banking services.

Rating and Price Target History for: American Superconductor Corp. (AMSC) as of 04-05-2011
02/04/10 03/14/11
I:BUY:$50 BUY:$45

50

40

30

20

10

0
Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2
2009 2010 2011

Created by BlueMatrix

To request further information regarding the companies discussed in this report, readers may send an email to research@wundernet.com or may write to the Wunderlich
Securities Research Department, Wunderlich Securities, Inc., 400 E. Pratt Street, Suite 710, Baltimore, MD, 21202.

Other Disclosures

Theodore O'Neill • 212.402.2054 • toneill@wundernet.com Wunderlich Securities, Inc.

4
American Superconductor Corp. April 6, 2011

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Theodore O'Neill • 212.402.2054 • toneill@wundernet.com Wunderlich Securities, Inc.

5
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