Shoals Technologies stock rises after Citi upgrade

Investing.com -- Shoals Technologies stock rose around 2% Thursday after Citi analysts upgraded the company from Sell to Neutral and increased the price target from $5.00 to $5.50 a share.

Citi's updated outlook is based on a more balanced risk-reward profile and recent developments surrounding the company's patent infringement case, which has now largely been resolved.

Citi analysts noted that the primary catalyst for the stock, its patent dispute, has "largely played out," with the Administrative Law Judge recommending a limited exclusion order.

They also highlighted that the issue of "shrinkback has been mostly put to rest," which removes a major uncertainty for investors.

Moreover, the firm cited the company's recent Master Service Agreements (MSAs) with Blattner and other top engineering, procurement, and construction (EPC) firms as positive signals, calling them "votes of confidence."

However, Citi warned that rising competition, particularly the expected launch of Voltage's AD product, remains a key downside risk, as the product will not be subject to the limited exclusion order.

While Shoals' near-term gross margins could be volatile due to factory consolidations, Citi pointed out potential upside for the company. These include gains in wallet share with top customers, further patent enforcement, and international expansion.

Citi also mentioned possible traction in Shoals' Battery Energy Storage Systems (BESS) product line, which has a total addressable market (TAM) of $142 million by 2025.

At its current valuation, Shoals trades at 8.4 times enterprise value to EBITDA, which Citi noted is "about one standard deviation below average" and historically represents a floor valuation for the company.

With expectations reset following the company's recent investor day, Citi views Shoals' risk-reward profile as more balanced, leading to the upgrade.

Source: Investing.com