Solar-Industry Small Cap Array Set For Big EPS Growth In 2023

Key Points

• Array has posted a gain of 30.96% in the past three months, far surpassing the most appropriate benchmark, the S&P 600 small-cap index.
• Analysts see the company growing year-over-year earnings and revenue when it reports on November 8.
• Wall Street has a "moderate-buy" rating on the stock and a price target of $22.38, a potential upside of 39.64%. 

Any time an industry is home to top-performing stocks, there’s always opportunity among companies that operate in industries related to the industry’s big names. Array Technologies NASDAQ: ARRY makes the ground-mounting systems used in solar energy installations. 

Sure, solar companies like large-cap Enphase NASDAQ: ENPH and mid-cap First Solar NASDAQ: FSLR get more attention than Array, which has a market cap of just $2.4 billion.

Within the solar energy sub-industry, those are the only two U.S.-listed companies outperforming Array at the moment, and only by slim margins. 

Array has posted a gain of 30.96% in the past three months, far surpassing the most appropriate benchmark, the S&P 600 small-cap index, tracked by ETFs such as the SPDR Portfolio S&P 600 Small Cap ETF NYSEARCA: SPSM. 

That index has dropped 20.95% year to-date. In contrast, Array is up 2.17% in 2022. That’s not so much to cheer about, but the not-so-distant future for Array could potentially bring more gains, if analysts are correct and if tax incentives deliver the punch that’s expected. 

Array qualifies as a newly public company, having made its public-markets debut exactly two years ago, in October 2020. That’s an encouraging sign, as companies often post some of their biggest price gains within the first several years of going public.

Like other companies in the solar industry, Array is well positioned to get a boost from sales due to the Inflation Reduction Act, which includes incentives for adding solar panels to businesses and residences. 

Albuquerque, New Mexico-based Array doesn’t make panels, but instead focuses on mechanical gear that helps maximize the panels’ performance. 

Gear Helps Panels Generate More Power 

Array is among the biggest makers of gear called trackers, which align solar panels to capture the best angle toward the sun. This adjustment allows the panels to generate as much as 25% more power than more conventional mounting gear. 

According to the company’s IPO filing, trackers also deliver a 22% lower levelized cost of energy than “fixed tilt” mounting systems. Trackers cost less than ground-mounted solar projects. The company also said that about “70% of all ground-mounted solar energy projects constructed in the U.S. during 2019 utilized trackers,” according to its sources.  

Other publicly listed companies that make trackers include two small companies, Beam Global NASDAQ: BEEM, which has a market cap of just $121 million and FTC Solar NASDAQ: FTCI, which checks in at $205 million. 

Neither of those companies is profitable, although FTC is expected to book net income of $0.26 per share next year, and Beam has been growing revenue at a fast clip in recent quarters.

Analysts See 2022 Earnings Growth

Array has been profitable since 2019, but has an uneven history of earnings growth. Earnings dropped sharply in 2021, but Wall Street sees that trend reversing this year, expecting $0.31 per share for the full year, an increase of 31%. In 2023, analysts see earnings rising another 206%, to $0.95 per share. 

According to MarketBeat earnings data for Array, the company has an uneven history when it comes to meeting or missing net income and revenue views. However, it beat both top- and bottom-line views in the past two quarters. 

While a company’s earnings history matters, and can have some predictive value, the new tax incentives as part of the recently passed climate bill could be a game changer for Array and other solar companies. 

Toward that end, analysts have a “moderate buy” rating on the stock and a price target of $22.38, a potential upside of 39.64%. 

Array’s chart shows a correction that began in August, as the stock pulled back from a high of $24. Shares closed Tuesday at $16.03, up $0.89, or 5.88%. But a gap-up in late July, followed by another on August 10 still combine to create that three-month gain.

When the company reports its third quarter on November 8, after the bell, Wall Street expects earnings of $0.10 per share on revenue of $397.18 million. Both would be significant year-over-year increases.