Array Technologies, Inc.

ARRY Details

Array Technologies, Inc. (NASDAQ: ARRY) manufactures  ground-mounting systems to be used in  solar energy projects. Its principal product called ‘tracker’ significantly increases energy production. 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)

• Revenue Decreased 44%: The company reported a decline of 44% YoY in its revenue to $245.9 million for Q1FY21,  primarily driven by a fall in the amount of ITC safe harbour-related shipments.
• Gross Profit Decreased 63%: The company recorded a decline of 63% YoY in its gross profit to $43.9 million for the quarter as volume deteriorated, causing gross margin to decrease from 27% to 18%  because of decline in revenue to absorb fixed costs, increased  margins on the 2020 safe harbour shipments, higher input costs due to increased commodity prices and higher freight costs.
• Decline in Net income: The company reported a decline of 96% YoY in its net income for the quarter at $2.9 million, adjusted EBITDA decreased 69% YoY to $34.5 million, and adjusted net income decreased 71% YoY to $23.7 million.

Key Data (Source: Company Reports) 

Risks:

The growth of the company is mainly dependent on demand for solar energy projects in the global market, hence, any unfavourable  situation is expected to impact the operations and financials 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:

Given the backdrop of increasing steel and freight costs as well as an ongoing revisit of open contracts to understand what costs can be passed on to customers, the company plans not to release guidance for FY21 now. While believing steel price and shipping costs rise to be temporary, the company has taken several measures to minimize the impact of costs increase on its margins. Moreover,  the outlook for the company’s products appears favourable amidst a growing number of EPCs, developers and asset owners. It has recently bagged 4 GW award from Primoris.

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

Technical Overview:

Chart:

Source: REFINITIV

Note: Purple Color Line Reflects RSI (14-Period)

Stock Recommendation:

The stock declined by ~56.9% in 3 months. It has made a 52-week low and high of $12.82 and $54.78, respectively.

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 improved asset turnover as well as decent outlook.

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 $13.20 per share, up 0.92% on 27^th July 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.

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

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