Independent Row Trackers And Domestic Steel Footprint Will Drive Strong Long Term Potential

Catalysts

About FTC Solar

FTC Solar provides single axis solar trackers, related software and steel components for utility scale solar projects.

What are the underlying business or industry changes driving this perspective?

• Adoption of independent row, 1P tracker architecture with center mounted slew drives and an 80 degree hail stow feature is gaining attention among large developers and EPCs, which can support higher project wins and, in turn, lift revenue and gross margin mix over time.
• Structural labor shortages and rising labor costs in utility scale solar put a premium on constructability. FTC Solar’s reported 0.053 labor hours per module, nearly 2x faster than some peers according to management, positions the company to help EPCs lower installation budgets and potentially support higher pricing power and net margins.
• Ownership of Alpha Steel and its domestic steel manufacturing footprint gives FTC Solar more control over domestic content, tariff flexibility and access to ITC 45x related benefits. Management expects these factors to lower COGS and support stronger gross margins and adjusted EBITDA.
• A growing base of MSAs totaling more than 7.5 gigawatts, including the 1 gigawatt Levona Renewables agreement and other arrangements with Tier 1 EPCs and IPPs, provides a visible project funnel that can convert into future revenue and help spread fixed costs over a larger volume, supporting earnings.
• Management’s focus on software platforms such as SUNOPS and SunPath, along with a next generation 2,000 volt extra long tracker and washerless design that reduce part count, aims to cut EBOS and O&M costs for customers. This can support higher value projects for FTC Solar and contribute to improved revenue quality and operating margins.

Assumptions

This narrative explores a more optimistic perspective on FTC Solar compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming FTC Solar's revenue will grow by 49.2% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -69.3% today to 1.3% in 3 years time.
• The bullish analysts expect earnings to reach $3.4 million (and earnings per share of $0.2) by about January 2029, up from $-55.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 141.6x on those 2029 earnings, up from -3.3x today. This future PE is greater than the current PE for the US Electrical industry at 31.2x.
• The bullish analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.41%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• FTC Solar is still reporting GAAP net losses, with a loss of US$23.9 million in the most recent quarter and adjusted EBITDA still negative at US$4 million. If gross margin progress stalls or reverses, the path to sustained profitability and the belief that earnings will rise could be challenged, affecting both net margins and earnings.
• The business model relies heavily on converting more than 7.5 gigawatts of MSAs and a growing pipeline into firm bookings. Management has acknowledged that regulatory changes such as ITC 45x uncertainty and tariff adjustments have already pushed some expected business to later periods. If similar delays persist or projects are cancelled, expected revenue and operating leverage could fall short of optimistic expectations.
• Management highlights labor shortages and rising labor costs in utility scale solar as a key opportunity for its constructability advantage. If industry wide labor constraints slow project starts or customers adopt alternative tracker or construction solutions, FTC Solar may not see the volume growth it is targeting, which would weigh on revenue growth and limit margin expansion.
• The company has taken on a term loan facility of US$37 million with another US$37.5 million available and has a warrant structure that moves GAAP results with share price changes. If the business does not move to consistently positive adjusted EBITDA, higher financing needs and noncash impacts could pressure the balance sheet and keep net losses elevated.
• FTC Solar’s product positioning is tied to independent row 1P architecture, high hail stow angles and domestic manufacturing through Alpha Steel, but competitors are also investing in foundations and other tracker technologies. If customers prefer alternative technical approaches or if domestic content rules or 45x implementation do not translate into the expected commercial benefits, the company’s ability to win share and support gross margin and earnings could be limited.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for FTC Solar is $20.0, which represents up to two standard deviations above the consensus price target of $14.38. This valuation is based on what can be assumed as the expectations of FTC Solar's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $20.0, and the most bearish reporting a price target of just $10.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2029, revenues will be $266.0 million, earnings will come to $3.4 million, and it would be trading on a PE ratio of 141.6x, assuming you use a discount rate of 9.4%.
  
• Given the current share price of $12.21, the analyst price target of $20.0 is 38.9% 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.