Nextracker shares fell in prolonged trading Thursday as questions on the solar technology company’s backlog overshadowed its better-than-expected quarterly results. LSEG said revenue in the primary quarter of fiscal 2025 rose 50% yr over yr to $719.9 million, well above the $617.5 million analysts were expecting. Adjusted earnings per share (EPS) also beat expectations, at 93 cents versus the 65 cent estimate, LSEG data showed. Nextracker Why we own it: Nextracker makes industry-leading tracking technology that permits large-scale solar plants to follow the sun’s movement and increase their power generation. The stock might be volatile, but now we have a multi-year investment horizon for this investment as a long-term bet on growing power demand. Competitors: Array Technologies Weight in Club Portfolio: 0.72% Launch: June 27, 2024 Last Purchase: July 3, 2024 Bottom Line A roughly $100 million increase in revenue and healthy earnings per share weren’t enough to satisfy Nextracker investors Thursday night. The stock fell greater than 4% in after-hours trading, adding to its nearly 5% decline during an unsightly trading session for U.S. stocks. Immediately following the discharge, market response was somewhat muted after Nextracker reiterated its full-year 2025 guidance despite a robust first-quarter outperformance. That wasn’t an enormous problem for the stock, though, because it’s still early within the fiscal yr, management is taken into account conservative, and utility-scale solar project scheduling is taken into account erratic. In fact, CEO Dan Shugar told Jim Cramer that the April-June results were so strong because some projects were accomplished sooner than expected and thus pushed into the primary quarter. And given the political uncertainty, we will not blame management for wanting to stay conservative. The review of Nextracker’s revenue backlog got here into sharper focus in the course of the conference call with analysts. And it appears to be the overarching concern of the quarter. In a shareholder letter, Nextracker said its backlog grew sequentially and is “over $4 billion, of which approximately 80% is expected to be realized in the next quarter.” [eight] quarters.” That sounds good at first glance, but it gets more complicated when you consider that Nextracker ended its fiscal 2024 in March with what it then called a record backlog of more than $4 billion. Ahead of Thursday’s earnings call, analysts at Truist Securities highlighted the similar description of the order size, saying it was “more likely to raise questions on activity levels in an otherwise positive report.” In fact, management responded to queries about the state of the backlog, including one from Well Fargo analyst Praneeth Satish, who specifically asked if the wording “over” the next eight quarters was a departure from previous management comments that said the backlog would be recorded “inside” eight quarters. Did that mean some deals would be extended? It turns out it was a smart observation from the analyst. “It’s just a little little bit of a shift, frankly,” Nextracker President Howard Wenger responded, before going on to explain that project lifecycles are “getting just a little bit longer,” largely due to theapproval process and what’s called interconnection, which basically connects the solar field to the broader power grid. That, in turn, impacts the speed at which Nextracker’s backlog turns into reported revenue. “The flip side is we’re getting much more visibility, longer-term visibility, which is sweet for the corporate. That backlog remains to be solid,” Wenger said. “Projects usually are not falling through. In fact, we have reviewed our projects internally. Literally one project has fallen through within the last 12 months. So it’s a really, very solid backlog.” NXT YTD towers over Nextracker’s year-to-date stock performance. We realize this may seem a little granular — “over” versus “inside”? Really? But for analysts who build financial models and certain investors, particularly traders with shorter time horizons, it can attract significant attention. It’s important to us too, and it helps us shape our views on the near-term outlook for the stock. At the same time, we’re looking at this backlog debate through our own investment lens. When we initiated our position in Nextracker in late June, we did so knowing that it is a volatile stock with a compelling multi-year story that is difficult to assess quarter-to-quarter. For this reason, we started the position rather small and cautiously added to it once. The core of our thesis is the growing global demand for electricity and the increasing role of solar power in meeting that demand. This is especially true because some of the largest companies behind rising electricity consumption – such as Amazon, Microsoft and Meta Platforms – are relying on clean energy for their power-hungry data centers. The other part of our thesis concerns interest rate sensitivity. The residential solar market has been more affected by higher interest rates than the utility solar market, where Nextracker operates, but the cost of money plays a role in all areas. With the upcoming rate cuts, the economics of solar projects should improve significantly. “That’s because with renewables like solar and wind, a lot of the costs are incurred up front for your complete lifetime of the project after which amortized. There’s no fuel. Maintenance is a really, very small cost. So we’re hoping the Fed cuts rates,” CEO Shugar Jim explained in a “Mad Money” interview Thursday. “That can be an enormous help to the utility-scale solar category and to Nextracker.” Of course, we would have liked to see a more significant improvement in Nextracker’s backlog and to hear that bottlenecks in completing projects are being reduced day by day rather than being even more stubborn than before. But nothing about Thursday night’s results and conference call changes the long-term story. Nextracker still has industry-leading tracking technology that helps customers maximize their power generation. In fact, one analyst said on the conference call that his reviews suggest the company is gaining market share, and management did not dispute that claim. “The market continues to be healthy and we’re at the least getting our justifiable share of the market,” Wenger said. Nextracker still has a strong balance sheet, even after tapping its cash hoard in June to buy Ojjo, which makes foundations for large solar plants that it says use less steel and labor than traditional systems. And Nextracker’s leadership team, led by CEO Shugar and Wenger, is sticking to its track record. Guidance Nextracker reiterated its fiscal 2025 guidance for revenue, adjusted EBITDA and diluted earnings per share: Revenue: $2.8 billion to $2.9 billion Adjusted EBITDA: $600 million to $650 million Adjusted diluted EPS: $2.89 to $3.09 In his interview with Jim, CEO Shugar defended the decision to maintain guidance, saying, in part, “Our yr remains to be young.” Given that the project timeline can be variable, we certainly understand the desire to maintain guidance at this point in the financial calendar. In addition, executives said first-quarter projects were more focused on the U.S., where margins are higher than expected for the rest of the year. In the first quarter, it was about 71% domestic and 29% international, compared to a normal ratio of two-thirds and one-third, respectively. That not only explains the company’s strong first-quarter gross margin and EBITDA margin, but also the rationale for leaving profitability guidance unchanged. With a stronger international component in the coming quarters, margins may not be as strong as in the first quarter. (Jim Cramer’s Charitable Trust is long NXT. A full list of stocks can be found here.) As a subscriber to CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. After sending a trade alert, Jim will wait 45 minutes before buying or selling a stock from his charitable foundation’s portfolio. If Jim has discussed a stock on CNBC, he will wait 72 hours after the trade alert is issued before executing the trade. THE INFORMATION REGARDING INVESTING CLUB DESCRIBED ABOVE IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY AND OUR DISCLAIMER. NO FIDUCIARY OBLIGATION OR OBLIGATION IS CREATED BY OR RESULTING FROM THE RECEIPT OF INFORMATION RELATED TO INVESTING CLUB. NO PARTICULAR RESULT OR PROFIT IS GUARANTEED.
An aerial photo shows the Kayenta Solar Power Plant on June 23, 2024 in Kayenta, Arizona.
Brandon Bell |
Shares of Next rascal fell in prolonged trading on Thursday as questions on the solar technology company’s project backlog overshadowed better-than-expected quarterly results.
