On Friday, Stem Inc. (NYSE:STEM), a company specializing in energy storage solutions, had its price target lowered by Piper Sandler from $2.00 to $1.50, while the firm maintained a Neutral rating on the stock. The adjustment follows Stem's latest financial update, which revealed a significant revenue shortfall. Revenue was 60% below expectations, primarily due to a revaluation of certain contract hardware guarantees that could lead to a maximum incremental reduction of $50 million.
Stem also reported adjusted EBITDA that missed analyst expectations, including revenue and other add-backs. Despite this, the company has left its EBITDA guidance unchanged. However, Stem's bookings showed a steep decline of 93% year-over-year at $23.8 million, attributed to the timing of future-term contracts. The company's backlog decreased by 15% quarter-over-quarter due to the cancellation of unprofitable contracts, mostly in the solar sector, which in turn lowered its contracted annual recurring revenue (CARR).
Despite these challenges, Stem noted some positive developments. The company's software gross margins on a GAAP basis outperformed expectations, increasing by 1000 basis points compared to Piper Sandler's consensus (PSC). Stem reiterated its focus on converting CARR into annual recurring revenue (ARR) more rapidly and indicated that storage activations for 2024 are tracking ahead of beginning-of-year expectations. The firm also anticipates an improvement in ARR in the remaining months of 2024.
Piper Sandler's decision to maintain a conservative stance on Stem's software and service estimates for fiscal year 2024 reflects a 19% lower projection than the broader market consensus. The firm's revised price target of $1.50 per share is based on the same discounted cash flow methodology previously used, with no changes to the Neutral rating on Stem's stock. The future performance of Stem Inc. will depend on the company's ability to meet its elevated expectations and improve its ARR as projected.
InvestingPro Insights
As Stem Inc. faces a challenging financial landscape, a glimpse into real-time data from InvestingPro reveals key metrics that could be pivotal for investors. The company's market capitalization stands at a modest $256.02 million, reflecting the size of the business in the current market. Notably, Stem's stock has experienced significant price volatility, with a 52-week high percentage of just 24.47%, underscoring the stock's sharp decline over the past year. This aligns with the observed revenue shortfall and the adjustments made by Piper Sandler.
InvestingPro Tips suggest that Stem operates with a considerable debt burden, which could be a concern given its current financial position. Analysts anticipate sales growth in the current year, which could provide a glimmer of hope for improvement. However, they are also cautious, as evidenced by two analysts revising their earnings downwards for the upcoming period. These insights suggest a mixed outlook for Stem, where potential growth is weighed against financial concerns and market performance.
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