Piper Sandler upgraded shares of Shoals Technologies Group Inc (NASDAQ:SHLS) to Overweight from Neutral in a note Friday, assigning the stock a price target of $28 per share.
Analysts told investors that while the renewable and alternative energy market appears concerned about the implications of higher rates toward industry growth, they see less 2024 risk given long project cycle times, discussions at RE+, and constructive EIA project data.
"We expect our coverage to reiterate positive demand commentary and believe backlog growth will be required for investor validation," wrote the analysts.
Focusing on SHLS, the analysts stated that they upgraded the stock following its share price pullback.
"The weakness in SHLS is in part driven by equity weakness of the largest renewable utility/developer stemming from higher interest rates," explained the analysts. "Currently, we believe the utility-scale equipment equities are incorporating increased risk surrounding growth. However, due to long project cycle times, we see less risk to industry growth during 2024 (industry demand commentary from RE+ was positive) and expect SHLS (plus other equipment names) to reiterate the strong demand environment for their products/services."
"Additionally, we are optimistic on SHLS' GM trajectory entering 2H'23 due to lower warranty charges as well as a higher systems revenue mix partially offset by manufacturing startup expenses."
The analysts acknowledged it remains unclear which one of SHLS' business initiatives will generate the most value to shareholders but said they believe the company has sufficient optionality for one to eventually hit.