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On Tuesday, UBS analyst William Grippin issued a downgrade for Ameresco (NYSE:AMRC) stock, moving the rating from Buy to Sell and significantly reducing the price target from $37.00 to $8.00. The stock, currently trading at $10.56, has experienced a dramatic 42.5% decline in the past week alone, according to InvestingPro data, and now sits near its 52-week low of $10.40. The revision comes amid concerns about potential risks to the company’s adjusted EBITDA guidance for the year 2025 and the possibility of further downward revisions to consensus estimates for 2026-27.
Grippin’s analysis suggests that Ameresco’s adjusted EBITDA estimates for 2025-27 are now 11% below the street’s expectations. This reassessment is partly due to anticipated challenges with the company’s federal projects, which account for 20-30% of its revenue. InvestingPro data reveals the company operates with a significant debt burden, with a debt-to-equity ratio of 2.23, while maintaining a concerning overall Financial Health Score rated as WEAK. The analyst indicates that the Trump administration’s early efforts to streamline the Federal government could lead to a more difficult contracting environment for Ameresco.
Despite Ameresco’s shares falling approximately 35% following the fourth-quarter 2024 results, Grippin points out that the stock is trading at only about a 1-turn discount to the weighted average peer group basket. This discount is notably smaller than the 3-5x discount typically seen in past estimate revision cycles. The UBS analyst acknowledges that Ameresco’s earnings stream appears more stable when compared to other business models within the Clean Energy coverage. However, the current uncertainty surrounding federal contracting leads to an unfavorable risk/reward balance for the stock at this time.
The downgrade was preceded by a note from UBS on February 25, which highlighted the DOGE risk and flagged the potential headwinds for Ameresco due to policy changes. As the situation unfolds, investors are now faced with a new set of considerations for Ameresco’s stock amidst the evolving landscape of federal contracting and its impact on the clean energy sector. Despite current challenges, InvestingPro analysis suggests the stock is undervalued at current levels, with 20+ additional exclusive insights available to subscribers, including detailed valuation metrics and comprehensive financial health analysis in the Pro Research Report.
In other recent news, Ameresco reported its fourth-quarter 2024 earnings, exceeding analysts’ expectations with an EPS of $0.88 compared to the forecasted $0.78. The company also achieved a revenue of $533 million, slightly above the anticipated $523.61 million, marking a 21% increase year-over-year. Despite these positive financial results, Craig-Hallum adjusted its price target for Ameresco to $34 from the previous $40, while maintaining a Buy rating, due to Ameresco’s guidance for 2025, which fell below market expectations. The company’s project backlog grew by 24% year-over-year, reaching a record $4.8 billion, and its overall revenue visibility stands at a record $9.5 billion.
Ameresco’s long-term outlook remains strong, supported by substantial visibility in multi-year and multi-billion-dollar contracts. For 2025, Ameresco has set a revenue guidance of $1.9 billion and an adjusted EBITDA target of $235 million, planning to place 100-120 megawatts of energy assets into service. The firm also noted that its federal projects represent approximately 20% of its 2024 revenue, with minimal direct effects from the new administration. The company’s contracted project backlog has nearly doubled in the past two years, reaching $2.5 billion.
Additionally, Ameresco’s cash position was reported at $109 million, with total corporate debt at $243 million. Despite the challenges posed by regulatory changes and potential delays in project execution, the firm remains optimistic about ongoing opportunities with the Department of Defense and potential expansions in performance contracting. The reiteration of the Buy rating by Craig-Hallum suggests confidence in Ameresco’s future performance, even as it navigates through the challenges posed by the present administration’s fluctuating funding priorities.
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