(By Balachander S) Westport Innovations Inc. (TSE:WPT) (Nasdaq: WPRT) shares were upgraded to "Sector Performer" from "Sector Underperformer" by CIBC World Markets Inc. analyst Michael Willemse.
"While we are still concerned about near-term losses and execution risks related to the ramp-up of Westport HD, these risks are now reflected in the share price and could be offset by higher sales growth & new JV announcements," Willemse wrote in a note.
The analyst has a price target of US$35.00 on shares of the Canada-based company, which provides engine and fuel system technologies using gaseous fuels.
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After rising 35 percent from the end of 2011 to about $45/share in late February 2012, the share price of Westport has declined by around 26 percent, largely due to the announcement on March 21 by Westport JV partner Cummins that the company was developing its own 15L spark-ignited heavy-duty engine, the analyst noted.
Willemse is of the view that the announcement could signal that Cummins is looking to eventually exit the CWI JV with Westport (the JV expires Dec 31, 2021). However, if Cummins still values the sales and marketing, R&D and brand name exposure from CWI, the JV could remain intact post-2021, the analyst noted.
"Regardless, Westport should still generate strong sales growth at both CWI and Westport Heavy Duty over the next few years. The earliest sales at CWI could be at risk is five years (nominal). The earliest sales of HDPI could be at risk of increased competition (as patents expire) is in the mid-2020's," Willemse wrote.
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The stock, which has been trading in the 52-week range between $19.29 and $49.68, retreated 4.35 percent to trade at $30.99 on Monday.