On Tuesday, Barclays (LON:BARC) maintained its Equalweight rating on Shoals Technologies Group (NASDAQ: SHLS) but reduced the price target from $7.00 to $5.00. The adjustment follows the company's reported decrease in backlog from $642 million to $597 million and a book-to-build ratio of approximately 0.5x. This ratio indicates that new orders are at half the rate of completed sales, suggesting potential challenges in meeting future revenue expectations.
Shoals Technologies, which expects to deliver $455 million of its current backlog over the next year, could face difficulties reaching the Street's fiscal year 2025 revenue estimate of $447 million. With the subtraction of the estimated $102 million in revenue for the fourth quarter, only $353 million of the 2025 sales would be covered by the backlog. Despite $60 million in incremental bookings since the end of the quarter, Barclays believes it may be tough to achieve the Street's forecast with the current data.
Barclays has also revised its own fiscal year 2025 revenue estimate for Shoals Technologies down from $441 million to $400 million. Consequently, the firm's forecast for EBITDA has been adjusted from $126 million to $94 million, indicating year-over-year results that are expected to be relatively flat. The revised price target is based on an 11x multiple of the updated 2025 EBITDA forecast.
The analyst noted that while there is an upside risk to the revised numbers, it would require an acceleration in activity in 2025 as customers potentially respond to changes in regulatory policy. However, the cost of labor could pose a challenge to this growth. The new price target reflects the analyst's updated financial projections and market conditions.
In other recent news, Shoals Technologies Group reported third quarter revenue that surpassed analyst expectations and subsequently raised its full-year revenue outlook. The company posted a quarterly revenue of $102.2 million, beating the consensus estimate of $98.86 million, despite a 24% year-over-year decline. Shoals attributed this drop to project delays previously discussed. Nevertheless, the company increased its full-year 2024 revenue outlook to $390-400 million, exceeding the $383.3 million analysts were expecting.
Shoals also forecasts fourth quarter revenue between $97-107 million, outpacing the consensus of $93.54 million. Quoting volume across its customer base increased almost 50% year-over-year to record levels. However, CEO Brandon Moss noted that uncertainty around interest rates, interconnection queues, and supply chain issues have extended sales cycles throughout the year. The company ended the quarter with a backlog and awarded orders of $596.6 million, down 5.8% year-over-year and 7.1% sequentially.
InvestingPro Insights
Recent InvestingPro data provides additional context to Barclays' analysis of Shoals Technologies Group (NASDAQ: SHLS). The company's market cap stands at $801.57 million, with a P/E ratio of 41.22 based on the last twelve months as of Q2 2024. This high earnings multiple aligns with one of the InvestingPro Tips, which notes that SHLS is "trading at a high earnings multiple."
Despite the challenges highlighted in Barclays' report, InvestingPro data shows that Shoals Technologies has maintained profitability over the last twelve months, with a revenue of $454.7 million and an operating income margin of 11.32%. However, the company's YTD price total return of -62.87% and the fact that it's trading near its 52-week low corroborate Barclays' cautious stance.
InvestingPro Tips also indicate that SHLS operates with a moderate level of debt and that its liquid assets exceed short-term obligations, which could provide some financial flexibility as the company navigates the challenges outlined in the article. For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Shoals Technologies Group, providing a deeper understanding of the company's financial position and market performance.
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