Power Solutions downgraded as resignation of accountant, CFO leaves too much uncertainty
Power Solutions International Inc. was downgraded to hold from buy at Wunderlich Securities, citing the uncertainty surrounding the power systems company's business prospects following the resignation of its independent accountant and chief financial officer. The stock had plummeted 62% on Friday to a record low, after Power Solutions disclosed in a filing that its independent accountant RSM US LLP had notified the company in its resignation letter that there were material weaknesses in internal controls over revenue recognition and overall control environment and that it could no longer reply on management representations. CFO Michael Lewis followed by agreeing to take a leave of absence and announcing his intent to resign effective March 4. The company said it started exploring strategic alternatives to improve its liquidity position and maximize shareholder value. Wunderlich analyst Liam Burke said that despite the long-term potential of Power Solutions' alternative fuel products, he can't remain bullish on the stock after the company's disclosures. "Despite the benefit of cost reductions and contracts that could drive future revenue, the current financial uncertainty outweighs any future potential, in our opinion," Burke wrote in a note to clients. The stock bounced 37% in morning trade, but was still down 67% over the past 12 months, while the S&P 500 has run up 22%.
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