Shoals Technologies Stock Jumps Following Citi Upgrade

Shoals Technologies experienced a stock increase of approximately 2% on Thursday after analysts at Citi upgraded their rating from Sell to Neutral, while also raising the price target from $5.00 to $5.50 per share.

Citi’s revised outlook reflects a more favorable risk-reward balance and recent progress in the company’s patent infringement case, which is now largely settled.

The analysts noted that the primary influencing factor for the stock, the patent dispute, has mostly concluded, with the Administrative Law Judge recommending a limited exclusion order. They also mentioned that concerns regarding “shrinkback” have largely been addressed, alleviating significant investor uncertainty.

Additionally, Citi pointed to the recent Master Service Agreements (MSAs) with leading engineering, procurement, and construction (EPC) firms like Blattner as positive indicators, considering these agreements as endorsements of the company’s capabilities.

However, Citi cautioned that increasing competition, notably the anticipated launch of Voltage’s AD product, presents a significant downside risk, as this new product will not be affected by the limited exclusion order.

While there may be some volatility in Shoals’ near-term gross margins due to ongoing factory consolidations, Citi identified various potential upsides for the company. These include opportunities to increase market share with top customers, further patent enforcement, and the prospect of international expansion.

Citi also highlighted the potential growth of Shoals’ Battery Energy Storage Systems (BESS) product line, which could tap into a total addressable market of $142 million by 2025.

At its current valuation, Shoals trades at 8.4 times enterprise value to EBITDA, a figure that Citi noted is “about one standard deviation below average” and historically represents a floor valuation for the firm.

With expectations adjusted following a recent investor day, Citi now considers Shoals’ risk-reward profile to be more balanced, resulting in the rating upgrade.