According to Barchart.com data, Nextracker (NXT) hit a 52-week high of $59.50 Tuesday morning in pre-market trading. It was the 29th time the solar company has hit a 52-week high in the past year.
How’s that for defying the odds?
The Invesco Solar ETF (TAN), the largest U.S.-listed ETF focused solely on the solar industry, is down nearly 39% over the past year and 9% percent so far in 2024. Regarding ETFs with significant positions in Nextracker, the largest by weight is the iShares Global Clean Energy ETF (ICLN) at 4.55%. It is the ETF’s fifth-largest holding. Its shares are down more than 26% over the past year and nearly 5% in 2024.
Yet despite the dour mood for anything clean energy, Nextracker’s shares are up more than 90% over the past year and 25% year-to-date.
Despite the big gains, it will continue to defy the industry odds and move higher over the next year. Regardless of what happens in 2024, it’s an excellent long-term buy. Here’s why.
The Road to Independence
Until Feb. 8, 2023, Nextracker was a part of Flex (FLEX), a provider of end-to-end manufacturing solutions for many different industries from over 130 facilities across 30 countries.
Nextracker is a leading provider of solar trackers used to move ground-mounted solar panels to follow the sun and software solutions to optimize those solar trackers for use in utility-scale and distributed generation solar power plants worldwide, creating clean energy 365 days a year.
On Feb. 8, 2023, Nextracker sold 30.6 million shares of its stock at $24. Including the underwriters exercising their over-allotment, it generated nearly $694 million in net proceeds. It used the money to purchase LLC common units from a Flex subsidiary. After completing the IPO, Flex and TPG (TPG) owned over 83% of Nextracker.
On Jan. 2, 2024, Flex spun off the remainder of its interest in Nextracker to Flex shareholders. Flex shareholders received 0.17 Nextracker Class A common shares for each Flex common share.
Nextracker’s been a completely independent company since then.
Nextracker’s First Quarterly Report Fully Independent
Nextracker Reported Q3 2024 financial results at the end of January.
Its revenues were $710 million, 38% higher than a year earlier. On the bottom line, it generated GAAP net income of $128 million, 3x Q3 2023. For the nine months ended December 31, 2023, its net income was $273.0 million, 191% higher than $93.8 million a year earlier.
Due to its strong third-quarter results, Nextracker management raised revenue and earnings estimates for fiscal 2024. It now expects revenue of $2.45 billion at the midpoint of its guidance, up from $2.35 billion. Its net income is predicted to be $401.50 million at the midpoint, up from $251.50.
“As the world transitions to renewable energy and with solar leading new power generation, we are well positioned as the global leader in trackers, and we’re just getting started,” stated CEO and founder Dan Shugar.
At the end of December, its backlog was significantly over $3 billion, with new contracts signed on every continent except Antarctica.
Its adjusted free cash flow was $314 million. It’s likely to generate at least $420 million for fiscal 2024. Based on a current enterprise value of $7.78 billion, it has a free cash flow yield of 5.4%.
Anything between 4% and 8% is a fair and reasonable value for its shares. Growing at its current pace, they will be in value territory by the middle of 2024.
The Industry Continues to Grow
While the solar industry is all doom and gloom right now, the reality on the commercial side of the business is relatively healthy. As its Q3 2024 presentation points out, in 2020, there were actual deployments of 3 GWh (gigawatt hours) of energy storage in the U.S. By 2025, the annual deployments are expected to be 115 GWh, a five-year compound annual growth rate of 69%.
The demand for power generation required to run electric vehicles, data centers for AI, and all the other industrial needs is growing like weeds. Solar power remains a very efficient form of energy. Nextracker will benefit significantly from this growing demand.
I guess that’s why the 20 analysts that cover NXT stock rate it a Strong Buy (4.80 out of 5) with a target price of $58.42. While that’s barely above where it currently trades, analysts generally play catch-up regarding fast-growing stocks.
Once Nextracker reports its Q4 2024 results at the end of April or early May, I could see many target-price increases from analysts.
While the energy transition to clean energy might not happen as fast as initially planned, there’s no question that it will occur. Maybe not in my lifetime, but it will.
Nextracker is ideally positioned to benefit from this transition. It’s an excellent long-term hold.
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On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
