Shoals Technologies is a buy, Roth says

Roth MKM analyst Philip Shen is beginning to have doubts about Shoals Technologies Group (Shoals Technologies Group Stock Quote, Chart, News, Analysts, Financials NASDAQ:SHLS) but not enough to move him off his “Buy” rating.

In a research update to clients February 22, Shen maintained his “Buy” rating on SHLS but lowered his price target on the stock from $30 to $25.

The analyst addressed where he was at with the stock heading into its fourth quarter results, which are due February 28.

“Heading into Q4, we are somewhat cautious on SHLS. We see strong margin potential supported by the recent domestic capacity expansion and opportunity for market/wallet share gain; However, we expect the shrinkback warranty to continue to weigh on shares near-term,” he wrote. “While bookings have been robust for the past few quarters, we wonder if some of this may be slowing. Additionally, we learned recently that Voltage is working to sidestep SHLS’s 337 claims.”

Shen thinks SHLS will post EBITDA of $173.2-million on revenue of $490.0-million in fiscal 2023. He expects those numbers will improve to EBITDA of 211.0-million on a topline of $630.3-million the following year.

“Despite our US utility scale solar outlook in 2024 of only 5% growth and the potential for more project delays/pushouts, we continue to believe that SHLS can grow faster than the market,” the analyst added. “That said, we now see ~25-30% topline growth for SHLS in 2024 vs. ~43% previously, and we believe the shrinkback warranty could remain an overhang in the near term, as we do not see a definitive clearing event in the coming quarters.”