Arsgera
Stem (NYSE:STEM) -9.2% in Friday's trading after Goldman Sachs downgraded the provider of energy storage solutions to Neutral from Buy with a $2.50 price target, cut from $5.50, following several periods of weaker than expected results and guidance around top line growth and margins.
While no meaningful shift is likely in the long-term growth opportunity for the energy storage space as the sector still stands to benefit from the long-term secular shift to renewables, Stem's (STEM) valuation has been hurt by the company's "mis-execution on growth and the heightened focus on profitability in a sector that has potential for large growth," Goldman's Brian Lee writes.
The analyst also believes Wall Street margin estimates are too high, as Stem (STEM) has consistently missed guidance on software revenues that were anticipated to provide a boost to margins; on the hardware side, revenue misses were due largely to complex projects the company is pursuing which have better margins, but these projects come with much longer conversion times on top of issues with permitting, interconnection and some delays from suppliers.
"While we remain constructive on profitability improvements and the possibility of revenue recognition of larger projects earlier than expected, we shift to a more neutral view given recent inconsistency with guidance and execution," Lee says.