Array Technologies, Inc.

ARRY Details

Array Technologies, Inc. (NASDAQ: ARRY) is one of the largest manufacturers of ground-mounting systems which is used in solar energy projects. The company sells its products to engineering, procurement, and construction firms that build solar energy projects and to solar developers, independent power producers, and utility companies.

Result Performance – For the first quarter ended 31 March 2021 – (Q1FY21)

For the first quarter ended 31 March 2021, the revenue fell 44% YoY to $245.9 million, primarily led by a fall in the amount of ITC safe harbour-related shipments. Further, gross profit decreased 63% YoY to $43.9 million as volume fell in the quarter.

Gross margin during the period declined from 27% to 18%  because of a decrease in revenue to absorb fixed costs,  higher margins on the 2020 safe harbour shipments, elevated input costs due to increased commodity prices and  larger freight costs. Operating expenses for the period rose to $30.8 million compared to $17.1 million in the same quarter last year mainly due to $6.2 million increase in equity-based compensation, $2.4 million one-off costs and higher costs relating to product and development, and growth initiatives. Meanwhile, the company for the period reported net income at $2.9 million, adjusted EBITDA  at $34.5 million, down 69% YoY and adjusted net income at $23.7 million, down 71% YoY.

Key Data (Source: Company Reports)

Recent Update:

On 24 June 2021, the company  announced two key additions to the executive team. Erica Brinker was appointed as Chief Marketing Officer, a newly created role that will be focused on strategic growth through commercial excellence efforts and emphasize ARRY’s focus on Environmental, Social, and Corporate Governance (ESG). Tyson K. Hottinger was appointed Chief Legal Officer  who will  look after all legal, compliance, and governance functions across the organization.

Risks:

The pace of growth of the company is primarily linked with the demand for solar energy projects in the global market, hence, any unfavourable drivers will directly impact the operations of the company. Further, the feasibility and demand for solar energy are impacted by cost competitiveness, stability, and presentation of solar energy systems versus non-solar renewable energy. Importantly, any interruption in the supply chain management of key raw materials from international vendors could disrupt the operations of the company.

Outlook:

Amidst rising steel and freight costs,  and ongoing  review of open contracts to forecast what costs can be passed on to the customers, the company has deferred the release of guidance for FY21. However, the company expects to release the guidance once it has completed the review of all open purchase orders and commodity and shipping prices remain stable for a long enough period to gauge the forecast for the remainder of the year. Moreover, as per the management of the company, the outlook for solar energy is extremely favourable given the larger objective of decarbonisation. Brighter business prospect with solar energy business augurs well for the company’s tracker product which enhances productivity.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

Technical Overview:

Weekly Chart –

Source: REFINITIV

Note: Purple colour lines are Bollinger Bands® with the upper band suggesting overbought status while the lower band oversold status, and yellow lines are Fibonacci retracement lines which measure price rebound and backtrack. https://www.bollingerbands.com/

Experiencing a low volatility, the stock has been trying to retrace up. In the process, it has given a higher close for the ongoing week at $16.57. The technical indicator RSI with a reading around 36 suggests gaining of momentum.

Going forward, the stock may have resistance around the 23.6% retracement level of $22.78 whereas support could be around the previous low of $12.87.

Stock Recommendation:

The stock has made a 52-week low and high of $13.22 and $54.78, respectively and is currently trading below the average of 52-week high-low range. The stock declined by ~61.8% in 6 months.

Considering the aforesaid facts, we have valued the stock using an EV/EBITDA multiple-based illustrative relative valuation and have arrived at a target price which reflects a rise of low double-digit (in % terms). We believe the company can trade at a slight premium to its EV/EBITDA Multiple (NTM) (Peer Average) considering ground mount solar is the fastest-growing source of new generation requirement in the US.

However, the investors should closely track related risks such as the rapidly evolving and competitive nature of the solar industry and sustained government regulations.

Considering the aforesaid facts, we give a “Speculative Buy” recommendation on the stock at the current market price of $16.57 per share, up by 5.01% on 28^th June 2021.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

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