Array Technologies, Inc.

ARRY Details

Array Technologies, Inc. (NASDAQ: ARRY) is one of the largest manufacturers of ground-mounting systems for solar energy projects. It sells its products to engineering, procurement, and construction firms that build solar energy projects and to solar developers, independent power producers, and utility companies. The company has a market capitalization of ~$2.07 billion as of 10^th June 2021.

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

For the first quarter ended 31 March 2021, the revenue decreased 44% YoY to $245.9 million, mainly led by a reduction in the amount of ITC safe harbour-related shipments. Further, gross profit for the quarter fell 63% YoY to $43.9 million led by lower volume in the quarter, causing gross margin to decline from 27% to 18%. Operating expenses for the quarter increased to $30.8 million from $17.1 million in the same quarter last year mainly on an increase in equity-based compensation. Net income for the period was reported at $2.9 million against $73.7 million in the same quarter last year. Adjusted EBITDA decreased 69% YoY to $34.5 million whereas adjusted net income plunged 71% YoY to $23.7 million.

Key Data (Source: Company Reports) 

Risks:

The growth of the company is directly linked with the demand for solar energy projects in the international market, hence, unfavourable environment created by regulatory changes and seasonal changes may directly affect the operations of the company. Further, the feasibility and demand for solar energy are influenced 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, in addition to continuing 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. In Q1FY21, it invested in a technology company that is expected to slash the cost of electronic controllers commonly referred to as a single axis ‘tracker’. On 9 March 2021, the company stated the opening of the Array Tech Research Center, a site dedicated to researching, developing, and field testing advanced solar tracker technology. All these developments may result in value addition for the company products, thereby, increased sales and profitability.

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/

While remaining in a down trend, the stock has given a stronger close having covered all the losses it incurred in the previous week and forming a ‘Bullish Engulfing’ candle for the ongoing week. The technical indicator RSI with a reading around 35 and a curve at the end pointing up, suggests gaining of bullish momentum.

Going forward, the stock may have resistance around the 23.6% retracement level of $22.88 whereas support could be around the previous low of $13.00.

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 ~54.7% 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 strong momentum for renewables energy in the US market.

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 “Buy” recommendation on the stock at the current market price of $16.33 per share, up by 4.35% on 10^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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