On Thursday, Baird made a significant adjustment to its stance on ESS Inc. (NYSE: GWH), downgrading the stock from Outperform to Neutral and slashing the price target to $9.00 from the previous $14.00.
The firm's decision was driven by a combination of market conditions and slower-than-anticipated adoption rates of the company's offerings.
The analyst from Baird expressed a more cautious view, suggesting that until there are clear signs of increased adoption and additional financing, they recommend holding off on purchasing the stock.
ESS Inc. recently reported third-quarter revenues that fell short of both Baird's and the consensus estimates. The company's revenue came in at $0.4 million, a stark contrast to the expected figures of $5.7 million and $5.3 million, respectively.
The shortfall was attributed to project delays, which have now postponed revenue recognition to the fourth quarter. This marks the second consecutive quarter where ESS Inc.'s revenue has not met expectations.
The financials for the quarter further reflected the challenges faced by ESS Inc. The adjusted EBITDA for the period was reported at a loss of $18.9 million, which was more severe than Baird's estimate of a $7.3 million loss and the consensus estimate of a $16.0 million loss.
The earnings per share (EPS) also suffered, recording a loss of $1.90, compared to the anticipated losses of $1.22 and $2.16 from Baird and consensus estimates respectively.
This downgrade comes as a response to the company's performance which has not aligned with initial projections. Baird's revised outlook indicates a need for ESS Inc. to demonstrate a tangible improvement in its business operations and financial health.
The firm will be closely monitoring the company's progress in terms of product adoption and the securing of additional financing, which could potentially alter their investment recommendation in the future.
In other recent news, ESS Tech has secured a significant loan from the Export-Import Bank of the United States (EXIM), totaling up to $22.7 million. This financial boost is aimed at supporting the expansion of the company's production lines.
Additionally, ESS Inc.'s Australian manufacturing partner, ESI, has secured a $40 million investment, which will support the expansion of ESI's manufacturing capabilities using ESS Inc.'s iron flow technology.
Analysts have also revised their outlooks for ESS Inc. Deutsche Bank (ETR:DBKGn) raised its price target to $9.00 while maintaining a Hold rating, and Roth/MKM maintained a Buy rating with a price target of $22.50. However, Canaccord Genuity (TSX:CF) reduced the company's price target to $1.00, also maintaining a Hold rating.
ESS Inc. reported Q2 revenue figures of $348,000 and is finalizing a $50 million funding agreement with EXIM to increase its manufacturing capacity.
The company plans to introduce commercial Electrochemical Capacitors in the second half of 2024 and is projected to achieve non-GAAP gross margin profitability with its Energy Warehouse units by the end of fiscal year 2024.
These are recent developments that highlight the company's commitment to expanding its manufacturing footprint and its anticipated profitability milestones. It is important to note that ESS Tech's compliance with the Credit Agreement will be crucial for its financial stability and future operations.
InvestingPro Insights
The recent downgrade by Baird aligns with several InvestingPro metrics and tips for ESS Inc. (NYSE: GWH). The company's financial health appears precarious, with InvestingPro data showing a market cap of just $105.64 million and a concerning revenue of $7.43 million for the last twelve months as of Q2 2024. This low revenue figure corresponds with the article's mention of missed revenue expectations.
InvestingPro Tips highlight that GWH is "quickly burning through cash" and "not profitable over the last twelve months," which corroborates the significant losses reported in the article. The tip that "analysts do not anticipate the company will be profitable this year" further supports Baird's cautious stance.
The stock's performance has been poor, with InvestingPro data showing a one-year price total return of -55.39% and a six-month return of -25.83%. This downward trend aligns with the "Price has fallen significantly over the last year" tip, reflecting the market's growing skepticism about the company's prospects.
Investors seeking a more comprehensive analysis can access 15 additional InvestingPro Tips for GWH, providing a deeper understanding of the company's financial position and market performance.
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