On Thursday, Roth/MKM maintained a Neutral rating on Stem Inc. (NYSE:STEM) but reduced the price target from $3.70 to $2.70. Stem Inc. reported a mixed set of financial results for the fourth quarter and provided guidance for the year 2024 that did not meet market expectations. Despite lower-than-anticipated revenue, the company's operational expenditure (opex) discipline contributed to a fourth-quarter EBITDA that surpassed consensus estimates, as well as EBITDA guidance for 2024 that aligned with expectations.
The analyst at Roth/MKM revised the revenue forecast for Stem Inc. downward for the year 2024 and slightly adjusted gross margins (GMs) while maintaining the adjusted EBITDA forecast due to the lower operational expenses. The report highlighted a lag in software sales compared to the growth in contracted storage assets under management (AUM). The firm underscored the importance of an increase in high-margin software sales as a key factor for Stem Inc. to improve its profitability.
The financial performance of Stem Inc. in the fourth quarter was a combination of both positive and negative outcomes. While revenue figures fell short, the company's ability to control operating expenses was a silver lining that helped achieve better than expected EBITDA results. The guidance for 2024 also reflected this trend, with EBITDA projections meeting analyst predictions despite revenue forecasts being adjusted downwards.
Roth/MKM's adjustment of the price target to $2.70 from the previous $3.70 reflects the new revenue expectations and the modest change in gross margins. The firm's stance remains neutral, indicating that while there are positive aspects to Stem Inc.'s financial management, there are also areas that require improvement, particularly in software sales, to drive the company's future profitability.
The focus for Stem Inc., as noted by Roth/MKM, is on the acceleration of high-margin software sales. This aspect is crucial for the company to enhance its profitability and potentially change the outlook of analysts in the future. The current neutral rating and revised price target suggest a wait-and-see approach as the company works to align its software sales growth with the increase in contracted storage AUM.
InvestingPro Insights
Stem Inc. (NYSE:STEM) has navigated a challenging financial landscape, as reflected in the mixed financial results and the revised guidance for 2024. The InvestingPro data provides additional context to the company's current situation. With a market capitalization of $425.6 million, Stem Inc. is navigating a period of significant growth in revenue, up 72.69% over the last twelve months as of Q3 2023. Despite this, the company's gross profit margin stands at a slender 1.86%, underscoring the concerns raised by Roth/MKM regarding the need for an increase in high-margin software sales.
InvestingPro Tips highlight the company's operational challenges. Stem Inc. is operating with a significant debt burden (Tip #0) and may have trouble making interest payments on its debt (Tip #1), which is a critical factor for investors to consider. Analysts do not anticipate the company will be profitable this year (Tip #7), aligning with the neutral stance taken by Roth/MKM. However, it's worth noting that analysts do anticipate sales growth in the current year (Tip #2), which may offer a glimmer of hope for future improvement.
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