By Steven Ralston, CFA

The management of Midwest Energy Emissions (MEEC) held a conference call yesterday to announce preliminary second quarter revenue of at least $9.2 million and to provide full year 2016 revenue guidance of at least $30 million. Bolstering the expectations, management stated that all 19 SEA™ Technology mercury emissions systems under contract have been installed and were “up and running throughout June.”

With its successful implementation of SEA™ Technology, Midwest Energy Emissions is gaining further traction within the marketplace as electric utilities attempt to achieve compliance with MATS. Many coal-fired utilities are having difficulties, ranging from encountering prohibitive costs in achieving a 90% reduction in mercury emissions to having to de-rate (lower the capacity of) a boiler to attain compliance. Electric utilities with challenged EGUs are seeking out alternative compliance solutions.

SEA Technology has been successfully demonstrated over 50 times at large operating power plants across the United States and in Canada, substantiating Midwest Energy’s significant cost advantage at 80% through 90% capture rates. Having established credentials through demonstrations, and now with SEA™ Technology being used at 19 operating EGUs, prospective customers with challenged EGUs are a sweet spot for Midwest Energy Emissions.

Management expects to win new contracts and begin selling product to additional EGUs during 2016. The benefits of new contract wins can accrue within the timeframe of a quarter. The turn time to implement Midwest Energy’s SEA™ Technology is relatively short: 8-to-16 weeks, and in many cases, Midwest Energy’s sorbent products can be utilized with existing back-end equipment until the custom-designed front-end system is designed and implemented.

Once Midwest Energy Emissions achieves and maintains MATS compliance more effectively for a customer over several months of operation at a lower cost, management foresees the opportunity to broaden its reach within the customer’s fleet of EGUs by offering to conduct demonstrations at the utility’s other power plants. Solidifying a position with an electric utility through further penetration of the fleet usually has a lead time ranging from three months to over a year.

Midwest Energy Emissions is well-positioned to benefit from the implementation of Mercury and Air Toxics Standards (MATS). The company has exclusive rights to Sorbent Enhancement Additive (SEA™) Technology for the reduction of mercury emissions by coal-fired electric generating units. The technology has been commercially deployed and provides many advantages, including low cost of operation, flexibility for optimization and preservation of fly ash marketability.

Midwest Energy is unique in that it has a singular focus (the mercury emissions control market), holds exclusive rights to patented processes, has achieved market penetration through the commercialization of SEA™ Technology and is positioned to take advantage of further opportunities afforded by the implementation of MATS. Comparable pollution control and value-added specialty chemical companies trade in a P/S valuation range between 3.2 and 0.5. Utilizing a top quartile P/S ratio of 2.5 on projected 2016 sales of $30.4 million, we raise our share price target to $1.55.

We are very optimistic about Midwest Energy Emissions. The company should experience a dramatic increase in revenues over the next few years as electric utilities adjust their mercury emissions control efforts at the coal-fired plants to become MATS-compliant.

READ THE LATEST FULL RESEARCH REPORT HERE

SUBSCRIBE TO ZACKS SMALL CAP RESEARCH to receive our articles and reports emailed directly to you each morning. Please visit our website for additional information on Zacks SCR and to view our disclaimer.