On Wednesday, Raymond James made a positive shift in its stance on Fluence Energy Inc. (NASDAQ:FLNC), upgrading the company's stock from Market Perform to Outperform. The firm also set a price target of $22.00 for the energy storage company.
The upgrade marks the first time Raymond James has taken a positive view on Fluence since it went public three years ago, highlighting the company's potential in the power storage industry, which is growing due to the increasing share of intermittent renewable sources like wind and solar in the global electricity mix.
The analyst cited the essential role of storage in managing the supply and demand balance of the grid and noted the necessity for enterprises to protect against power outages caused by the worsening climate crisis. With U.S. storage installations more than doubling in 2023 and similar growth trends observed worldwide, Fluence stands out as one of the few publicly traded companies focused on grid-scale storage.
The company's achievement of becoming EBITDA-positive ahead of its competitors and its impressive revenue growth, with a compound annual growth rate (CAGR) of over 30% in the past three years, were also highlighted.
Previously, Raymond James had reservations regarding Fluence's low gross margin and high valuation, but these concerns have largely dissipated. Improvements in customer contract repricing and economies of scale in battery sourcing have led to a margin uplift for Fluence.
Despite the stock's 27% decline year-to-date, the firm has dismissed a short report questioning Fluence's relationship with its major backers, Siemens and AES (NYSE:AES), agreeing with Fluence's rebuttal and considering the criticisms unfounded.
The analyst concluded that with the company's valuation now at 14 times its forecasted FY26 adjusted EBITDA, the time was right to endorse the stock. The firm's confidence in Fluence's sustainable gross margin of 12-15% and the potential increase in revenue from services and software, which currently remain in the low single digits, contributed to the decision to upgrade the company's stock rating.
InvestingPro Insights
As Fluence Energy Inc. (NASDAQ:FLNC) captures the attention of Raymond James with its upgrade to Outperform, real-time data from InvestingPro provides additional insights into the company's financial health and market position. With a market capitalization of $2.8 billion, Fluence is navigating the competitive energy storage sector with significant revenue growth, reporting a 70.25% increase in the last twelve months as of Q1 2024, and a quarterly growth of 17.23% in Q1 2024.
InvestingPro Tips highlights that Fluence holds more cash than debt, signaling a strong balance sheet, and analysts are optimistic about the company's future, expecting net income and sales to grow this year. Notably, 4 analysts have revised their earnings for the upcoming period, reflecting confidence in Fluence's financial trajectory. However, the company faces challenges with weak gross profit margins and high volatility in stock price movements. Despite these concerns, analysts predict the company will be profitable this year.
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