Stem, Inc.

STEM Details

Stem, Inc. (NYSE: STEM) is one of the world's largest digitally connected, intelligent energy storage networks, offering customers an energy storage system sourced from leading global battery original equipment manufacturers (OEMs) that the company delivers through its partners as well as through its Athena artificial intelligence (AI) platform, with ongoing software-enabled services to operate.

Latest News:

• Development on eMobility: STEM announced on January 05, 2022, that it has entered into a Co-Marketing Agreement with ENGIE North America, a provider of clean electricity, to develop an offering that will enable widespread adoption of eMobility solutions for schools, transit agencies, and commercial fleets across the United States.
• Inorganic Endeavors: STEM and Also Energy Holdings, Inc. (AlsoEnergy), a global solar asset management software leader, announced a definitive agreement on December 16, 2021. STEM will acquire AlsoEnergy in a stock and cash transaction. According to the transaction terms, STEM will buy all of AlsoEnergy's existing shares for an aggregate purchase price of USD 695 million, consisting of roughly 75% of the total consideration in cash and approximately 25% in STEM's ordinary stock.

Q3FY21 Results:

• Significant Growth in Topline: The company reported a growth of 4.34x in total revenues to USD 39.83 million in Q3FY21 (ended September 30, 2021) from USD 9.17 million in Q3FY20, due to an increase in demand for systems and continued growth in host customers.
• Expansion of Net Income: The company's net income increased to USD 115.61 million in Q3FY21 from a loss of USD 18.79 million in Q3FY20.
• Healthy Balance Sheet: As of September 30, 2021, the company had cash and cash equivalents (including short term investments) of USD 575.99 million and total debt of USD 89.74 million.

Key Risk:

• Procurement Risk: Due to the recent COVID-19 pandemic and the Delta variant, the company has suffered difficulties receiving some of its components and materials from numerous vendors inside and outside the United States. Future trade disruptions could be caused by political, social, or economic upheaval in particular locations where its suppliers are situated. Any adverse event, such as increased levies, tariffs, or other charges on imports and exports, could harm the company's operations.

Outlook:

• FY21 Estimates: As of November 09, 2021, STEM expect its FY21 revenues to be around USD 147 million and adjusted EBITDA to be approximately USD 25 million. The company reiterates that it expects to recognize 50-60% of total revenue for FY21 in Q4FY21.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(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.

STEM Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

STEM's share price has fallen 45.25% in the past six months and is currently trading towards the lower-band of its 52-week range of USD 14.72 to USD 51.49. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 32.84. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 19.24.

Considering the correction in the stock price in the past six months, encouraging outlook, current valuation, and associated risks, we recommend a "Speculative Buy" rating on the stock at the current price of USD 15.90, up 2.05% as of January 11, 2022, 9:52 AM ET.

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

* All forecasted figures and industry information have been taken from REFINITIV.

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