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On Friday, Scotiabank adjusted its outlook on Array Technologies (NASDAQ: ARRY), reducing the price target to $12 from the previous $17 while maintaining a Sector Outperform rating. The adjustment follows a 25% decline in ARRY's stock since last week's announcement, which included a downward revision of its financial year 2024 (FY24) guidance.
The firm acknowledged the impact of project delays and cancellations on the company's growth trajectory and earnings outlook.
According to Scotiabank, despite the reduction in growth expectations and the backdrop of strong margins, the current market valuation of Array Technologies at approximately 4.5 times its forecasted FY26 EBITDA (excluding 45X) is excessively low. This valuation stands in stark contrast to the average valuation of 6.5 times CY26 EBITDA for its peers, which the bank also considers undervalued.
The firm has revised its growth projections for FY24 significantly due to project postponements and has also lowered expectations for FY25 and FY26 revenue. Despite these adjustments, Scotiabank suggests that its estimates might be conservative, citing a backlog that provides visibility into FY25. The bank anticipates top-line growth of 35% and 25% for FY25 and FY26, respectively.
Scotiabank's revised price target is based on a 7 times multiple of the company's revised 2026 EBITDA (excluding 45X), which is discounted compared to the 8.5 times target multiple for Array Technologies' closest peer.
Array has adjusted its 2024 guidance amidst challenges. The company reported second-quarter revenue of $256 million, an adjusted gross margin of 35%, and an adjusted EBITDA of $55.4 million.
Despite a strong order book and robust supply chain, Array Technologies has revised its full-year 2024 guidance downward due to short-term project delays and other headwinds.
The company also introduced SkyLink, a product that simplifies cable management and installation, and hosted industry-first insurance and customer events. Array Technologies is also pursuing initiatives to clarify the eligibility of additional parts for tax credits.
However, the firm's second-quarter revenue was down 50% from 2023 but up 67% sequentially from Q1 2024. The company expects gross margins to remain in the low to mid-30s moving forward.
InvestingPro Insights
In light of Scotiabank's recent outlook adjustment on Array Technologies, current real-time data from InvestingPro provides additional context for investors. With a market capitalization of approximately $987.52 million and a high price-to-earnings (P/E) ratio of 63.3, Array Technologies is trading at a premium relative to earnings. Despite this, the company's valuation implies a strong free cash flow yield, as per one of the InvestingPro Tips, which could be an attractive feature for investors seeking companies with the potential to generate cash.
Moreover, the InvestingPro Tips highlight that the stock is currently in oversold territory according to the Relative Strength Index (RSI), and it is trading near its 52-week low. This could indicate a potential entry point for investors looking for a rebound opportunity, especially considering that analysts predict the company will be profitable this year. However, it's worth noting that the stock has experienced significant volatility and price declines over various periods, with a one-year price total return of -68.57%.
For those considering an investment in Array Technologies, it's important to weigh the potential for profitability against the recent downward revisions in earnings and sales expectations for the current year. Investors can find an additional 16 InvestingPro Tips on Array Technologies, offering deeper insights into the company's financial health and market performance, by visiting https://www.investing.com/pro/ARRY.
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