Orion Energy Systems, Inc.

OESX Details

Orion Energy Systems, Inc. (NASDAQ: OESX) is engaged in developing, manufacturing, and marketing lighting and energy management systems. The company’s products are sold in three segments viz. commercial office and retail, area lighting, and industrial applications to various customers, including large national account end-users, federal and state governments, electrical distributors, contractors, and energy service companies (ESCOs). The company operates in three segments, namely, 1) Orion Engineered Systems Division (OES), develops and sells lighting products, and provides construction and engineering services for commercial lighting and energy management systems. 2) Orion Distribution Services Division (ODS) focuses on selling lighting products through manufacturer representative agencies and a network of North American electrical suppliers and contractors. 3) Orion U.S. Markets Division (USM) engaged in selling commercial lighting and energy management systems to wholesale servicers and ESCOs. As of June 07, 2021, the company’s market capitalization stood at USD 184.22 million.

Strategic Investment to Enhance Customer Value: On May 05, 2021, OESX announced a USD 0.5 million investment in ndustrial.io, a provider of software and services to optimize industrial facilities across all phases of discrete and process manufacturing supply chains. OESX acquired ownership in ndustrial.io through its participation in the ndustrial’s USD 6 million Series A funding.

FY21 Results: The company reported a 22.54% decline in total revenues to USD 116.84 million in FY21 (ending March 31, 2021) compared to USD 150.84 million in FY20, primarily due to hold-off multiple projects during the first half of FY21, as a result of Covid-19 pandemic. Product revenue contributed 75.02%, while service revenue contributed 24.98% of the total revenues generated during the year. However, net income more than doubled to USD 26.13 million in FY21 vs. USD 12.46 million in FY20 due to the deferred income tax benefit of USD 19.60 million.

Reliable Customer Base (Source: Investor Presentation, June 02, 2021)

Key Risks: OESX's largest customer accounted for 56%, 74.10%, and 20.70% of the total revenues FY21, FY20, and FY19, respectively. The concentration of business with one customer can potentially hurt the company’s financial health.

Outlook: The company received a contract extension of USD 14.90 million from its national retail customer. It expects it to be completed by the first nine months of FY22. It also received an additional contract of USD 1.5 million from its national specialty retail customer and expected it to be completed during the first and second quarters of FY22. As a result, the company expects its total revenues for FY22 to grow by approximately 30%.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Data Source: REFINITIV, Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company’s FY22E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

OESX Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: OESX’s share price has decreased by 37.07% in the past six months and is currently trading at a lower band of the 52-week range of USD 3.03 to USD 11.98. The stock is currently trading below its 200 DMA levels. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 6.89. On the technical chart, the next support level is USD 5.40. Considering the decline in the stock price in the past six-month, strategic investments for expansion, strong margins, and associated risks, we recommend a “Speculative Buy” rating on the stock at the closing price of USD 5.99, up by 0.17% as of June 07, 2021.

* The reference data in this report has been partly sourced from REFINITIV.

* Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level.