Shares of Nextracker soar on stellar earnings. What we need to see before upgrading the stock
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The sun is shining on Nextracker in extended trading Tuesday, as shares soared after the solar technology company reported a top and bottom line beat for its fiscal third quarter. Even better, management increased its full-year profitability outlook and reported a record backlog. Revenue in its fiscal 2025 third quarter came in at $679 million, down 4.5% year over year, but well ahead of the $651 million consensus estimate, according to LSEG. Adjusted earnings per share (EPS) of $1.03 in the three months ended Dec. 31 rose 7.3% on an annual basis, breezing past the 59-cent estimate, LSEG data showed. The results were strong and the call was bullish. Nextracker executives are firing on all cylinders, winning larger projects both in the U.S. and abroad, and the company seems well-positioned to navigate any hiccups resulting from tariffs, the supply chain or shifting U.S. energy policy priorities. It’s no wonder Nextracker shares jumped more than 16% in after-hours trading, to roughly $46.20 apiece. That is above the stock’s highest close so far this year, set on Jan. 16 at $45.27 a share. Nextracker began 2025 on a tear, extending momentum it found in mid-December after a post-election pullback ran its course. We twice sold into the strength, most recently on Jan. 7 . Following Nextracker’s Jan. 16 peak, though, the stock had been negative in six out of the past seven sessions through Tuesday. NXT 1Y mountain Nextracker shares over the past 12 months. Bottom line It’s hard to ask for more than what Nextracker delivered Tuesday night. Sales and earnings trounced expectations, fueled by an adjusted EBITDA margin that crushed Wall Street expectations. EBITDA — short for earnings before interest, taxes, depreciation, and amortization — is an alternative measure of operating profitability. Free cash flow also ran well ahead of estimates. Better yet, the future looks bright. Management raised its outlook for full-year cash flow and earnings, thanks no doubt to a record backlog that is now “significantly greater than $4.5 billion,” according to a press release. At the end of Nextracker’s fiscal second quarter, the company said the backlog was “more than $4.5 billion.” Investors keep a close eye on changes to this descriptive language, evidenced by an earnings sell-off in August after Nextracker used “over $4 billion” for the second straight quarter. The backlog growth is being supported by “robust demand in all key regions for the company with meaningful contributions from new products,” the press release said. During the earnings call, we learned that 87% of Nextracker’s backlog is expected to be realized over the next eight quarters. And of that eight-quarter chunk, “the majority of that” is expected to be realized over the next four quarters, President Howard Wenger said on the call. Tuesday’s report makes clear that this is a very strong management team, and the raised guidance — and record backlog — bode very well for the future. “As far as the U.S. market goes, the demand is strong,” Wenger said. “We had record bookings in the U.S. this quarter and our pipeline is indicative of continued strength.” Nevertheless, we’re keeping our hold-equivalent 2 rating and price target of $55 a share on Nextracker’s stock. For starters, it’s not our style to chase a move like the one we are seeing in extended trading Tuesday. But, crucially, we also need more clarity on solar policy under the new Trump administration. While President Donald Trump has said that he’s a “big fan of solar,” it’s unclear what the administration’s policies will be regarding government spending on renewable energy and solar tax credits. Trump has notably been critical of wind energy, and since taking office last week, he has taken a number of steps to boost fossil fuel production in the U.S. Nextracker Why we own it: Nextracker makes industry-leading tracking technology, which enables large-scale solar panel installations to follow the sun’s movement and increase their power generation. The stock has been volatile and largely disappointing, but we see this investment as a long-term bet on growing electricity demand, driven in large part by artificial intelligence computing. Competitors: Array Technologies Weight in the Club portfolio: 0.92% Initiation: June 27, 2024 Most recent buy: Sept. 6, 2024 Trump’s pledges to raise tariffs on imports into the U.S. is another wrinkle to the Nextracker story. Asked about tariffs, Nextracker executives sounded confident in their ability to navigate whatever may come, calling out “very strong relationships” with U.S. steel mills and a diversified international supply chain that includes India, a solid alternative to China. “We’re in this great position [where] we can make locally for local markets, or we can export to arbitrage depending on what’s happening with the global supply chain,” CEO Dan Shugar said on the call. That supply chain strength also makes Nextracker more attractive to customers. In our October earnings reaction, we noted that Nextracker’s successful efforts to sell 100% domestically made solar trackers could make its products more attractive to customers since they will be able to take advantage of a 10% investment tax credit included in the Inflation Reduction Act of 2022. Wenger provided a positive update on this dynamic on Tuesday’s call. “From a customer perspective in our pipeline, in our actual bookings, we’re seeing more and more domestic content to be part of what we’re contracted to do and not only to have domestic content, but they have higher and higher levels of domestic content,” he said. “We’re seeing more customers wanting 100% domestic content.” Ultimately, Nextracker continues to differentiate itself from the competition, resulting in growing demand. Wenger argued that Nextracker is winning because of what executives see as a “flight to quality.” “Over time with scale, these projects are getting bigger and bigger. There’s more of them where we believe we’re emerging as really the trusted brand, but we’re also differentiated across many of the key buying vectors, proven technology, proven low cost, proven energy yield,” he said, which all contributes to a lower levelized cost of energy, or LCOE, a key metric in the industry. Guidance Similar to what we saw in late October, Nextracker reaffirmed its fiscal 2025 revenue guidance while increasing its outlook profitability and cash flow. 2025 revenue guidance: $2.8 billion to $2.9 billion 2025 adjusted EBITDA guidance: $700 million to $740 million, up from $625 million to $665 million 2025 adjusted EPS guidance: $3.75 to $3.95, an increase from $3.10 to $3.30 Reiterating sales guidance is understandable considering there is elevated uncertainty about U.S. policy with Trump back in the White House and Republicans controlling both chambers of Congress. However, the material increase to the profit outlook demonstrates the strength of Nextracker’s leadership team, as the company is operating much more efficiently than the Street was expecting. (Jim Cramer’s Charitable Trust is long NXT. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. 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The sun is shining on Nextracker in extended trading Tuesday, as shares soared after the solar technology company reported a top and bottom line beat for its fiscal third quarter. Even better, management increased its full-year profitability outlook and reported a record backlog.
