New Highs in Sight For Symbotic and its AI Warehouse Automation

Key Points

• Symbotic had another solid quarter, with deployments accelerating and recurring revenue up 145%. 
• Analysts are raising their price targets and see the stock returning to an all-time high.
• The risk is that fear of the FOMC may keep the market in check until later in the year. 

Symbotic’s NASDAQ: SYM Q2 results were not a blowout, but they don’t have to be with hyper-growth figures, triple-digit increases in recurring revenue, and improved guidance. The takeaway from the report is that the business is gaining momentum in its two key segments and has a strong, secular growth story to drive it. Warehouse automation is a budding industry and a critical step in improving business efficiency. 

Symbotic is the leader and has only eighteen systems deployed, a small number relative to its three top clients. Walmart NYSE: WMT, Target NYSE: TGT, and Albertson’s NYSE: ACI operate more than 120 warehouses and distribution centers, providing an avenue for 500% growth without adding new clients. Because the business is accelerating deployment, growing recurring revenue faster than expected, and on track to double its footprint in the foreseeable future, its hyper-growth should continue and may even accelerate. 

Symbotic Growth Supported by Improved Deployment Times

Symbotic’s Q2 is highlighted by several developments that resulted in improved deployment times. Among them are a software upgrade that enhances throughput and capacity, another upgrade to improve modularization, and a new AI chip that provides more power. Three deployments were completed, and three started, more than forecast, bringing the total number of systems operating to eighteen. 

Accelerated deployment is important for the top line because it produced better-than-expected equipment sales and boosted recurring revenue sooner than expected. The company operates in two segments, with products and deployment on one side and services on the other. Services growth is important because it is the higher-margin segment and will lead to sustained margin improvements over time. The net result is that revenue grew 59% to $424.3 million, recurring revenue by 145%, to outpace the Marketbeat.com consensus by 300 basis points. 

The company continues to post GAAP losses but was EBITDA positive for the quarter and generated positive free cash flow. The company’s cash flow resulted in a 40% improvement in cash. Cash and equivalents are up to nearly $1 billion and are expected to grow over time. The balance sheet is in solid shape with virtually no debt, cash and assets up, and shareholder equity turning positive. Long-term debt is less than 0.1X equity for this tech stock. 

Symbotic Guidance Leads the Analysts to Revise Estimates, Raise Targets

Symbotic’s Q2 results are compounded by robust guidance, which came in above the analysts' consensus at the low end. The high end of the range implies 500 basis points of outperformance relative to the pre-release estimate and may be cautious. In addition to core momentum strength, the new GreenBox venture is taking off. The company revealed that the first client is C&S Wholesales Grocers, the eighth largest wholesale food distributor in the US, with nearly three dozen warehouse/distribution centers nationwide. The first revenue from that deal will be recognized in the current quarter. 

Analysts like what they see in Symbotic’s results and issued several positive revisions following the release. Marketbeat.com tracks four revisions from top firms, including three boosted targets and one reiterated target that aligns with or is above the consensus. The consensus implies about 20% upside and is up about 100% YOY, leading the market to higher levels. A move to the consensus of $55 aligns with the all-time highs. 

Is Range-Bound Symbotic Ready to Move Higher?

The price action in Symbotic is range bound and may not be able to move higher soon. The market surged following the release but is capped near $49.50 and the high end of the range. If the market cannot move above $49.50 soon, it will likely remain range-bound below that level well into the summer, possibly longer. So, new highs are in sight, but whether the market will move up to that level is questionable. Even if it does, fresh all-time highs are unlikely until later this year or next year when the interest rate outlook clarifies.