Array Technologies, Inc.

ARRY Details

Array Technologies, Inc. (NASDAQ: ARRY) is world’s one of the largest manufacturers of  ground-mounting systems which is used in  solar energy projects. Its principal product is an integrated system of steel supports, electric motors, gearboxes and electronic controllers generally referred to as ‘tracker’. The company’s products are sold 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 Plunged 44%: Revenue for Q1FY21 fell 44% YoY to $245.9 million, mainly led by a fall in the amount of ITC safe harbor-related shipments.
• Gross Profit Fell 63%: Gross profit decreased 63% YoY to $43.9 million, reflecting higher commodity prices, higher logistics and lower absorption of fixed costs.
• Increase in Operating Expenses: Operating expenses for the quarter increased by 80.5% YoY to $30.8 million, primarily on a sharp increase in general and administrative expenses. Thus, a decline in gross profit and an increase in operating expenses caused EBITDA for the quarter to decline by 87.1% YoY to $13.05 million.
• Decline in Net income: The company reported net income for the quarter at $2.9 million which declined by 96.1% YoY mainly on account of a decline in operating profit and a spike of 76% YoY in interest expenses. Adjusted EBITDA fell 69% YoY to $34.5 million, and adjusted net income decreased 71% YoY to $23.7 million.

Key Data (Source: Company Reports) 

Recent Update:

As per the release dated 13 July 2021, the company has appointed Ken Stacherski as Senior Vice President of Operations to oversee Array's global integrated supply chain strategy that includes raw material procurement, supply agreements, and manufacturing operations.

Risks:

The pace of growth of the company is  linked with the demand for solar energy projects in the global market hence, any unfavourable divergence will directly impact the operations 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:

Amidst rising steel and freight costs as well as ongoing review of open contracts to evaluate what costs can be passed on to customers, the company is not able to release guidance for FY21. However,  the outlook for solar is  very favourable for the businesses, and consumers and governments have stepped up  their efforts to decarbonize. Also, the regulatory environment is closely monitoring the movement in this regard. Further, solar with trackers has demonstrated that it is the lowest cost and most environmentally friendly form of energy in a new generation.

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

Technical Overview:

Weekly Chart –

Source: REFINITIV

Note: The purple color line in the chart shows RSI (14-period).

The stock has been on a downtrend and in the process, it made a low of $13.41 and has been consolidating around the same for few weeks. For the ongoing week, it has given a softer close at $15.56. The technical indicator RSI with a reading around 34 and a flattish curve at the end, suggests weak to flat momentum for the stock.

Going forward, the stock may have resistance around $18.90 whereas support could be around $14.00.

Stock Recommendation:

The stock has made a 52-week low and high of $13.22 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 ground mount solar is the fastest growing source of new generation requirement in the US.

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 $15.56 per share, down 2.26% on 13^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.