Goldman says this solar tech stock can surge nearly 50%

Posted By: EN Todayon: January 16, 2024In: Renewable Energy News

There’s a sunny outlook ahead for Nextracker , according to Goldman Sachs. The investment bank initiated coverage of the solar technology company with a buy rating, simultaneously setting a 12-month price target of $62. This implies a potential 47% rally from the stock’s Friday closing price of $42.12. Nextracker is the world’s largest supplier of solar trackers, devices that optimize solar panels by tracking the sun’s path. The company’s shares have fallen nearly 10% in 2024 after Nextracker completed its spinoff from Flex on Jan. 2. Goldman advised Nextracker on the spinoff. NXT YTD mountain NXT YTD chart A major catalyst ahead for Nextracker comes from the Inflation Reduction Act’s manufacturing credits, which give tax incentives for renewable energy companies. “We note that the value of the credits [for solar trackers] are actually among the most lucrative across all solar components,” wrote Goldman Sachs analyst Brian Lee. Tracker credits could account for between 20% and 25% of Nextracker’s gross margin dollars, according to Lee. Likewise, “manufacturing credits could drive ~30%-45% of earnings for tracker companies, with the size of the impact on earnings being second only to panels.” Although Nextracker has already established itself as a leader in the U.S. market, Lee also pointed to the company’s “diverse geographic footprint” as positive for providing exposure to faster growing markets. By his estimation, Nextracker’s non-U.S. markets growth has more than twice outpaced its domestic deliveries over the past three years. “As more markets continue to adopt solar trackers in order to increase yields and lower [the levelized cost of energy], we believe leverage to international markets can potentially drive continued outsized growth in NXT’s international deliveries,” he wrote. “The [total addressable market] for solar trackers globally amounts to approximately close to 5X the size of the U.S. market, with a penetration of ~20%-30% (vs. ~80% in the U.S.).” Improving supply chains, a better cost structure “as well as being more prudent on customer contract terms,” will push up Nextracker’s gross margins, Lee said, underscoring the energy company’s ability to maintain premium margins versus its international peers. “This would appear to suggest NXT is in a position which we feel is suggestive of higher barriers to entry with healthy margins, and we believe this is attributed to NXT’s premium technology, sticky relationships with Tier 1 customers, and local sales team/supply chain,” he said. — CNBC’s Michael Bloom contributed to this report.