ERII: Rising CO2 Refrigeration Adoption Will Drive Long-Term Upside

Analysts modestly lifted their price expectations for Energy Recovery, pointing to stronger long term profitability and supportive new targets in the high teens to low twenties, including a recent move to $23 from $17, even as they temper near term revenue growth assumptions.

Analyst Commentary

Recent Street research highlights a constructive but selective view on Energy Recovery, with valuation targets moving higher as analysts balance solid execution in core markets against pacing risks in newer growth channels.

Bullish analysts point to the company’s progress in CO2 refrigeration and overall profitability as key drivers supporting higher price targets in the high teens to low twenties, while still acknowledging that some adoption curves are tracking more slowly than initially anticipated.

Bullish Takeaways

• Higher price targets in the mid to high teens and low twenties reflect confidence that long term earnings power is underappreciated in current valuation multiples.
• Performance in CO2 refrigeration is seen as validating the company’s technology and reinforcing the runway for revenue growth as installations scale.
• New coverage initiations with Outperform style ratings underscore a view that execution in core markets and disciplined cost controls can drive margin expansion.
• Bullish analysts view the expanding opportunity set as supportive of a premium multiple relative to peers with less differentiated technology.

Bearish Takeaways

• Original equipment manufacturer adoption for CO2 refrigeration is running about a year behind prior expectations, highlighting execution risk in newer verticals.
• Delays in uptake could compress near term growth versus prior models, limiting the pace at which valuation can re rate even with higher long term targets.
• Some analysts see a risk that slower partner adoption may require incremental investment or incentives, potentially weighing on near term profitability.
• Mixed timing signals on rollouts encourage a more cautious stance on forecasting, with limited room for further multiple expansion if execution does not accelerate.

What's in the News

• Energy Recovery completed repurchases of 626,440 shares, about 1.17% of outstanding shares, for $8.4 million between July 1 and September 30, 2025, finishing a $30 million buyback totaling 2,183,648 shares, or roughly 4% of shares outstanding (company buyback update).
• The company reported no share repurchases between August 6 and September 30, 2025 under a separate buyback authorized on August 6, 2025, leaving that program with zero shares repurchased to date (company buyback update).

Valuation Changes

• The fair value estimate has edged down slightly, from $18.60 to $18.24, reflecting modestly lower growth assumptions.
• The discount rate has risen slightly, from 8.26% to 8.29%, implying a marginally higher required return on equity.
• The revenue growth forecast has fallen meaningfully, from about 18.64% to 15.59%, indicating more conservative expectations for top line expansion.
• The net profit margin has improved, rising from roughly 27.22% to 29.44%, signaling expectations for stronger long term profitability.
• The future P/E multiple has eased slightly, moving from about 18.05x to 17.72x, suggesting a modestly lower valuation multiple on forward earnings.