Introduction Of US-made Battery Modules Will Strengthen Competitive Advantage

Key Takeaways

• Expansion of the domestic supply chain and U.S.-made battery modules enhance competitive advantage, potentially increasing margins with less reliance on imports.
  
• Growing services and digital offerings improve net margins, supported by high demand and a robust pipeline for future earnings growth.
  
• Changes in tariffs, competition, and political uncertainties pose risks to Fluence Energy's cost structure, cash flow, and revenue, with critical dependence on fiscal execution.

Catalysts

Through its subsidiaries, provides energy storage and optimization software for renewables and storage applications in the Americas, the Asia Pacific, Europe, the Middle East, and Africa.

• Fluence Energy's increased backlog of $4.5 billion, with a 55% growth this year, provides strong visibility into future revenue, supporting expectations for continued revenue growth.
  
• The expansion of Fluence's domestic supply chain and the introduction of U.S.-made battery modules enhance its competitive advantage, potentially leading to higher margins due to reduced reliance on foreign imports.
  
• The projection of 50% revenue growth in fiscal 2025, driven by high demand and advanced negotiations on $1.5 billion worth of projects, indicates a robust pipeline that should contribute to increased earnings.
  
• The company's growing recurring revenue from services and digital offerings, which increased 80% to $100 million, is expected to improve net margins due to the higher profitability of these businesses.
  
• Fluence's strategic decision to invest in cutting-edge 530-amp hour cells, thus enhancing product offering and securing exclusive production lines, could drive future earnings through increased market share and customer value.

Fluence Energy Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Fluence Energy's revenue will grow by 29.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.8% today to 4.9% in 3 years time.
• Analysts expect earnings to reach $287.7 million (and earnings per share of $1.84) by about January 2028, up from $22.7 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $419 million in earnings, and the most bearish expecting $193.4 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.6x on those 2028 earnings, down from 82.4x today. This future PE is lower than the current PE for the US Electrical industry at 23.5x.
• Analysts expect the number of shares outstanding to decline by 4.73% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.24%, as per the Simply Wall St company report.

Fluence Energy Future Earnings Per Share Growth

Risks

• The energy storage industry faces potential disruptions from changes in tariffs on imported Chinese batteries, which could impact Fluence Energy's cost structure and gross margins.
  
• There is a risk associated with the need for approximately $300 million in additional working capital to support growth, which could affect cash flow and liquidity if not adequately funded.
  
• The competitive landscape is intensifying with increased competition from Chinese manufacturers, which may lead to pricing pressures and affect Fluence Energy's revenue and market share.
  
• The significant reliance on the second half of the fiscal year for 80% of annual revenue introduces execution risk. Any project delays could impact Fluence Energy's ability to meet revenue and earnings targets.
  
• Economic and political uncertainties, such as the recent changes in the U.S. administration and its impact on the Inflation Reduction Act, could influence customer sentiment and affect backlog conversion into revenues.

Valuation

• The analysts have a consensus price target of $26.32 for Fluence Energy based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $47.0, and the most bearish reporting a price target of just $19.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $5.9 billion, earnings will come to $287.7 million, and it would be trading on a PE ratio of 17.6x, assuming you use a discount rate of 7.2%.
  
• Given the current share price of $14.44, the analyst's price target of $26.32 is 45.1% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.