US Domestic Content Strategy And New Product Platform Will Strengthen Competitive Edge By 2026

Key Takeaways

• Fluence Energy leverages a U.S. domestic content strategy to mitigate geopolitical risks and boost revenue via increased domestic customer interest and a significant backlog.
  
• The company's innovative product platform aims to reduce ownership costs and counter Chinese pricing pressures, with expectations of improved earnings and net margins in the future.
  
• Competitive pressures and delays in contract signings are impacting revenue growth and margins, while increased tariffs and aggressive pricing threaten profitability and investor confidence.

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 has a solid competitive advantage with its U.S. domestic content strategy, which protects against geopolitical risks and enhances future revenue potential through increased customer interest domestically.
  
• The company's new product platform, launching in fiscal 2026, promises industry-leading density and reduced total cost of ownership, driving anticipated revenue growth and supporting gross margins within the 10% to 15% range by offering competitive pricing.
  
• Fluence's increased focus on product innovation, especially with its new platform, aims to counteract pricing pressures from Chinese competitors and is expected to improve earnings through technological differentiation.
  
• The significant backlog of $5.1 billion, along with a robust $21.4 billion pipeline, both ensure strong visibility for future revenue growth, with expected consistent additions to recurring service and digital business revenues.
  
• Despite current competitive pricing pressures, Fluence's planned accelerated product development and leverage of digital tools are aimed at sustaining margin improvement, positioning the company for enhanced net margins in fiscal 2026 and beyond.

Fluence Energy Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Fluence Energy's revenue will grow by 22.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from -0.1% today to 2.4% in 3 years time.
• Analysts expect earnings to reach $110.6 million (and earnings per share of $0.65) by about April 2028, up from $-2.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $223 million in earnings, and the most bearish expecting $13.1 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.6x on those 2028 earnings, up from -240.4x today. This future PE is lower than the current PE for the US Electrical industry at 21.5x.
• Analysts expect the number of shares outstanding to grow by 1.68% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.06%, as per the Simply Wall St company report.

Fluence Energy Future Earnings Per Share Growth

Risks

• The company is experiencing delays in the signing of specific contracts in Australia, which has resulted in a reduction of $600 million in revenue guidance. This could affect overall revenue growth and investor confidence.
  
• There is significant competitive pressure, especially from Chinese players in international markets, which is exerting pressure on margins and could impact net profit margins.
  
• The increase in tariffs, specifically the recently announced 10% tariff on Chinese imports, is expected to impact gross profit by approximately $10 million, impacting overall earnings negatively.
  
• Despite a strong backlog, the company faces aggressive pricing competition that could impact their margins. This could lead to lower profitability than expected.
  
• The company's revised guidance indicates a back-end weighted revenue realization, which poses a risk of slippages into the following fiscal year, potentially affecting short-term revenue realization and investor expectations.

Valuation

• The analysts have a consensus price target of $9.24 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 $33.0, and the most bearish reporting a price target of just $2.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $4.6 billion, earnings will come to $110.6 million, and it would be trading on a PE ratio of 20.6x, assuming you use a discount rate of 9.1%.
• Given the current share price of $3.71, the analyst price target of $9.24 is 59.8% 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.