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By Erik Kobayashi-Solomon | 12-19-2011 10:00 AM

Warm Your Portfolio With This Geothermal Stock

Operational and financial improvements at alternative-energy firm Ormat Technologies have underscored the stock's bargain price, says Morningstar's Mark Barnett.

Erik Kobayashi-Solomon: Hi, I'm Erik Kobayashi-Solomon, co-editor of Morningstar's OptionInvestor. Today, it's my great pleasure to welcome Mark Barnett, who is a power analyst and utility analyst here at Morningstar.

Mark, thanks for coming.

Mark Barnett: Always great to be here, Erik.

Kobayashi-Solomon: So Mark, as you know, a couple of months ago, I did an options strategy on a company that you covered called Ormat. It's a really interesting company, providing kind of green-energy generation. You just recently reaffirmed your fair value estimate for Ormat, and I just wanted to hear some of your reasoning for doing that, such as the timing and so forth.

Barnett: Sure. Well, since the last time that we've spoken, we had a number of operational updates and third-quarter earnings. So basically what we had been looking for were the answers these questions: "Where does our thesis stand, and what are some of the milestones we've been looking for?" And those were plants in operation. We looked at how are those going, especially the North Brawley problems and/or losses declining there.

Kobayashi-Solomon: North Brawley, it's a generation facility in Nevada that had some operational problems.

Barnett: Right, and it was making a loss, really hurting the bottom line for a while. Then second, we were looking for financing. One of the big topics we talked about before is looking at whether a company is on the right track. To start with the latter, there's been significant amount actually of success since the last time that we spoke. Examples include the Department of Energy loan guarantees, a private financing for a foreign power plant, and another financing here in the U.S.

Kobayashi-Solomon: The firm was able to pull down a total hundreds of millions of dollars between both of those loans, right?

Barnett: Yes. With the size of the Department of Energy loan, the first part is about $150 million, and there will be an equal-sized amount probably as that project progress next year.

Kobayashi-Solomon: So that's very positive news.

Barnett: Exactly. I think the market was a little bit skittish around whether those are going to come through, and we've really seen them deliver.

Kobayashi-Solomon: So that’s basically one big source of uncertainty kind of off the table?

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