Capstone Turbine Corporation (NDAQ:CPST) shares rallied nearly four percent today after Lazard analyst Sanjay Shrestha initiated coverage with a $2.50 price target. The analyst noted that the company is making a turnaround and represents a great way to invest in the anticipated growth of the distributed generation market. Shareholders are clearly betting on the same conclusion that the company's turnaround will lead to substantially improved operating results in the future.

Some investors are concerned that top and bottom line growth in the company has been slowing down considerably in the short-term. Compared to fully year results published three years before, the company's annual revenue grew 66.7% durings its fiscal year while year to year quarterly sales decreased 14.5% in its most recent quarterly report. Similarly, the company's most recent full year loss was reduced by 23.1%; however, the most recent quarterly loss showed an increase of 11.5%.

Sanjay insists, however, that the company is in the process of a turnaround that should start yielding significant results going through 2012. "Our 2.50 price target reflects a 25x multiple on our 2012 EPS estimate of $0.20 discounted back at 25% for three years. We believe it is important to look at a 2012 earnings scenario given the company's growth trajectory and market penetration." So, it comes down to a question of the company's future earnings - is the company really on track to turn itself around?

The distributed generation market definitely seems to be growing as an alternative energy source. DG works be generating electricity from many small energy sources in a process that results in low maintenance, low pollution and high efficiencies. The problem is that they can occasionally have high costs; however, as we know, there are several markets that are willing to pay. Alternative energy sources are only going to grow in popularity as oil prices increase. Combined, these factors make CPST a stock worth watching!

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