Orion Energy Systems Inc.

OESX Details

Orion Energy Systems, Inc. (NASDAQ: OESX) provides cutting-edge LED lighting systems, Internet-of-Things-enabled control solutions, project engineering, design energy project management, and maintenance. Even though it distributes goods in several industries, its products primarily focus on commercial offices, retail, area lighting, and industrial applications. Most of the company's sales are made in North America.

Latest News:

• Recent Acquisition: The Company bought Stay-Lite Lighting, a countrywide lighting and electrical repair company, in early January 2022. OESX has built a robust countrywide lighting and electrical maintenance service platform with Stay-Lite, which compliments the LED lighting capabilities while offering a growing foundation of recurring services income.

Q3 FY22 Results:

• Topline Performance: Orion's Q3 FY22 revenue declined to USD 30.7 million from USD 44.3 million in Q3 FY21, mainly driven by anticipated year-over-year reductions in project activity principally related to the Company’s largest customer, as well as the impact in the current period of customer delays on several larger LED lighting and controls projects.
• Gross Margin remain unchanged: During the quarter under consideration, the company’s gross profit percentage remained unchanged at 24.9% despite lower sales, driven by improved pricing, product mix and production cost efficiencies.
• Strong Balance Sheet: Orion ended Q3'22 with over USD 41M of liquidity, including USD 17.3M of cash and cash equivalents and $24M available on its credit facility and no debt outstanding.

Preliminary Highlights for FY22 (Results to be Announced on June 7, 2022)

• For the full-year FY22, the company expects revenue growth of ~6% to USD 124 million vs USSD 116.8 million reported in FY21.
• A gross margin of at least 27%, ~120bps above over FY21
• Financial liquidity of ~ USD 35 million

Key Risks:

• Customer Concentration Risk: On December 31, 2021, one client accounted for 44.4% of accounts receivable. As of March 31, 2021, three clients supplied 33.9%, 16.4%, and 10.1% of accounts receivable, respectively. As a result, losing any of the company's significant clients might hurt its bottom line.

Business Outlook

• Given the current pace of large-customer activity, Orion anticipates FY 2022 revenue of approximately USD 130M, representing growth of 11% over revenue of USD 116.8M in FY 2021. Long-term, Orion’s Board and management team are committed to and confident in achieving the Company’s strategic plan which seeks to grow the business, via organic and external growth initiatives, into a USD 500M annual revenue business over approximately five years.
  

Valuation Methodology: Price to Earnings Multiple based Relative Valuation

(Source: Analysis by Kalkine Group)

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

OESX's stock price has fallen 49.2% in the past nine months and is leaning towards the lower of its 52-week range of USD 6.78 to USD 2.15. We have valued the stock using the Price to Earnings Per Share-based relative valuation methodology and arrived at a target price of USD 2.69.

Despite short-term challenges, the company continue to see significant long-term growth opportunities with current and prospective major national accounts. Also, Orion’s Board and management team are committed to and confident in achieving the Company’s strategic plan which seeks to grow the business, via organic and external growth initiatives, into a USD 500M annual revenue business over approximately five years. Orion’s strategic plan envisions organic growth averaging at least 10% per year, augmented by external growth, including strategic acquisitions, business partnerships and other initiatives

Considering the above rationale, strong liquidity position, debt free balance sheet, associated risks, and current valuation, we recommend a "Speculative Buy" rating on the stock at the current market price of USD 2.28 as of June 01, 2022, at 08:25 AM PDT.

1-Year Technical Price Chart (as of June 1, 2022, at 08:25 AM PDT). Source: REFINITIV, Analysis by Kalkine Group

Technical Summary Analysis

*CMP as of June 01, 2022, at 08:25 AM PDT

 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.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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

Note 2: Investment decision 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 valuation has been achieved and subject to the factors discussed above. 

Note 3: The report publishing date is as per the Pacific Time Zone.

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