On Thursday, Mizuho adjusted its outlook on Shoals Technologies Group (NASDAQ:SHLS), a company specializing in electrical balance of systems (eBOS) solutions for solar energy projects. The firm reduced the stock price target to $18 from the previous $19 while maintaining a Buy rating.
Shoals Technologies reported its fourth-quarter earnings, aligning with the previously issued guidance and estimates. However, the forecast for the fiscal year 2024 fell short of growth expectations. The company's revenue growth is estimated to be around 3% per year at the midpoint of the guidance.
This modest increase is primarily attributed to project delays, as Engineering, Procurement, and Construction (EPC) companies are experiencing shortages in critical equipment like transformers and switchgear, which have lead times exceeding one year.
The delays in projects are seen as a result of market conditions rather than a loss of market share for Shoals. This perspective is supported by the growth in the company's stock backlog. Despite these challenges, Shoals has managed to maintain its long-term gross margins between 40-45% for its unique eBOS product offerings.
Management has confirmed the wire replacement charge of $185 million at the upper limit, addressing concerns that have kept investors cautious over the last two quarters. This clarification is expected to alleviate some of the uncertainties that have been affecting investor sentiment.
In light of these developments, Mizuho has reiterated its Buy rating for Shoals Technologies but has lowered the price target to reflect the revised EBITDA estimates. The decrease in the price target is a modest $1 adjustment from the previous valuation.
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