Shoals Technologies Shares Rise After Citi By Investing.com Upgrade

Investing.com — Shares of Shoals Technologies rose about 2% on Thursday after analysts at Citi upgraded the company from a sell rating to a neutral rating and raised their target price per share from $5.00 to $5.50.

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 been largely resolved.

Citi analysts noted that the main catalyst for the action, the patent dispute, had “largely played out,” with the administrative law judge recommending a limited exclusion order.

They also pointed out that the “withdrawal” issue has largely been set in motion, removing a major uncertainty for investors.

Furthermore, the firm cited the company’s recent Master Service Agreements (MSAs) with Blattner and other leading engineering, procurement and construction (EPC) firms as positive signals, calling them “votes of confidence”.

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

While Shoals’ near-term gross margins could be volatile due to plant consolidation, Citi emphasized the potential upside for the company. These include gains in share of wallet 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 the mean” and historically represents a minimum valuation for the company.

With expectations reset after the company’s last investor day, Citi views Shoals’ risk-reward profile as more balanced, leading to the upgrade.