On Wednesday, Deutsche Bank adjusted its outlook on ESS Inc. (NYSE: GWH), reducing the price target to $1.15 from the previous $1.40, while continuing to recommend a Hold rating on the stock. The adjustment follows ESS Inc.'s first-quarter earnings report, which saw the company miss revenue expectations, with figures coming in at $2.7 million compared to the anticipated $4 million by Deutsche Bank and $3.2 million by other analysts.
The company noted an additional $2 million in delayed revenue from the fourth quarter related to Honeywell (NASDAQ:HON) and ESI transactions, implying that only $700k of the revenue was not delayed. ESS Inc. reported an adjusted EBITDA of negative $15 million, which was more favorable than Deutsche Bank's projection of negative $20 million and the consensus estimate of negative $16 million.
ESS Inc. emphasized its ongoing efforts to reduce costs and aims to achieve gross margin profitability within the current year. However, Deutsche Bank has chosen to maintain a cautious stance, citing the company's failure to address investor concerns regarding potential dilution as it explores both dilutive and non-dilutive financing options.
The bank's revised valuation of ESS Inc. is based on a blend of projected 2027 sales and EBITDA multiples. The forecast for 2027 revenue has been reduced to $493 million, down from the previous estimate of $504 million, with an EBITDA of $25 million and an adjusted EBITDA of $37 million. This represents a decrease of approximately $29 million from earlier predictions. Additionally, expectations for 2024 have been modestly lowered by approximately 4%, with revenue now anticipated to be $28 million and adjusted EBITDA to negative $70 million.
InvestingPro Insights
With ESS Inc. (NYSE: GWH) navigating a challenging financial landscape, real-time data and insights from InvestingPro provide a deeper look into the company's current situation. Despite recent setbacks, analysts are anticipating sales growth in the current year. This optimism is echoed by the fact that analysts have revised their earnings upwards for the upcoming period, indicating potential for a positive shift in the company's trajectory.
InvestingPro Data highlights a substantial revenue growth of 743.4% in the last twelve months as of Q4 2023, which may bolster confidence in the company's ability to scale. However, the data also reveals that ESS Inc. is grappling with negative gross profit margins, which stands at -148.57% for the same period, underscoring the cost challenges the company faces. The stock has experienced significant volatility, with a notable 22.0% return over the last week, although it remains to be seen whether this momentum can be sustained.
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