by Ian Harvey
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Options Trade - Array Technologies Inc (NASDAQ: ARRY) Calls
Tuesday, March 02, 2021
** OPTION TRADE: Buy ARRY JUL 16 2021 45.000 CALLS at approximately $5.80. (Max. $6.50)
Place a pre-determined sell at $11.60.
Also include a protective stop loss of $2.35.
Array Technologies Inc (NASDAQ: ARRY), a ‘green tech’ company providing tracking technology for large-scale solar energy projects. It’s not enough just to deploy enough photovoltaic solar collection panels to power an energy utility; the panels have to track the sun across the sky, and account for seasonal differences in its path. Array delivers solutions to these problems with its DuraTrack and SmarTrack products.
Array boasts that its tracking systems will improve the lifetime efficiency of solar array projects, and that its SmarTrack system can boost energy production by 5% overall. The company clearly has impressed its customers, as it has installations in 30 countries, in more than 900 utility-scale projects.
President Biden is expected to take executive actions to boost green economic policy at the expense of the fossil fuel industry, and Array could potentially benefit from this political environment.
The outlook for Array Technologies looks very promising. The solar industry in the U.S. is poised for growth in the future as the focus shifts to renewable energy to fight climate change. The company expects the installation of solar power systems with Array’s trackers to grow at a CAGR of about 20 percent over the next three years. The global market for solar trackers is expected to reach $22.3 billion by 2027, which represents a growth of 140 percent from $9.3 billion in 2019.
About Array Technologies …..
Founded in 1989, Array Technologies designs and manufactures solar tracking systems for large-scale energy projects. Solar trackers can boost power generation by adjusting panels to optimize sunlight during the day. The company is on a growth trajectory and has expanded its volumes and increased its revenues in recent years.
This company’s stock is new to the markets, having held its IPO in October of last year. The event was described as the ‘first big solar IPO’ in the US for 2020, and it was successful. Shares opened at $22, and closed the day at $36. The company sold 7 million shares, raising $154 million, while another 40.5 million shares were put on the market by Oaktree Capital. Oaktree is the investment manager that had held a majority stake in the company since 2016.
Array is expected to post its earnings report for the fourth quarter of 2020 on March 9. The company expects that its 2020 sales will be 32 percent higher compared to 2019 and the adjusted EBITDA will be 30 percent higher. Investors should pay close attention to management’s commentary about Array’s expansion plans in the U.S. and international markets to fuel future growth. In 2021, Array is expected to report an adjusted EPS of $0.87 on sales of $989 million.
Array Technologies trackers adjust the angles of solar panels, allowing them to more efficiently capture the sun's rays throughout the day. There's evidence to suggest that the market for solar farms with trackers is growing much faster than the market for standard ground-mounted systems. This trend bodes well for the company: Already, more than 25% of solar modules in use in the U.S. are mounted on Array's trackers.
Management expects the installation of solar power systems with trackers to grow at a compound annual rate of nearly 20% over the next three years, more than three times the growth rate for fixed-tilt systems. Array went public in October, but it has been around for decades, so it has a proven track record, unlike many other IPO stocks. It posted impressive top- and bottom-line growth over the last few years, making it cheaper than other leading solar stocks on a price-to-sales and enterprise-value-to-EBITDA basis.
U.S. sales comprise 90% of Array's total revenue. And while the U.S. market is strong, Array is expanding internationally to try to gain a foothold in emerging markets like China, Australia, Europe, and South America.
In its February 2021 investor presentation, Array detailed why its tracker is better than the competition, and ultimately can continue to capture market share at home and abroad. There are a number of factors, but the common denominator is lower costs for its customers. Array's core product, the DuraTrack HZ v3, has fewer components. It's easier to install, easier to maintain, and therefore cheaper in the long run than the competition. Array stock has a much more attractive valuation than other big-name solar stocks and is growing at a faster rate as well, making it an excellent under-the-radar option right now.
Guggenheim analyst Shahriar Pourreza seems to be confident about the company's growth prospects, noting that the stock appears undervalued.
“Renewable energy companies have seen a large inflow of capital as a result of the ‘blue wave’ and the Democrats’ control of the White House and both chambers of Congress; however, ARRY continues to trade a significant discount to peers," the analyst noted.
Pourreza added, "We continue to be bullish on ARRY’s growth prospects driven by 1) tracker market share gains over fixed-tilt systems, 2) ARRY market share gains within the tracker industry, 3) ARRY’s large opportunity in the less-penetrated international market, 4) the opportunity to monetize their existing customer base over the longer-term through extended warranties, software upgrades, etc., which are highly margin accretive.”
In line with these bullish comments, Pourreza rates ARRY shares a Buy, and his $59 price target implies a 59% upside from current levels.
Array has 8 reviews on record since it went public. Of these, 6 are Buys and 2 are Holds, making the consensus rating on the stock a Strong Buy. The average price target, at $53.75, suggests room for ~45% upside.