The recent upgrade of Shoals Technologies Group signals a potential turnaround for the solar infrastructure provider, following a challenging period for renewable energy stocks. Piper Sandler analyst Kashy Harrison raised the company’s rating to “overweight” from “neutral,” setting a new price target of $16, representing a 43% upside from current trading levels.
This upgrade comes as welcome news for investors who have weathered Shoals’ difficult journey. The company’s stock has declined approximately 50% over the past year, significantly underperforming the broader market as rising interest rates and project delays hampered growth across the solar sector.
Harrison’s analysis points to several catalysts that could drive Shoals’ recovery. “We anticipate the domestic solar market stabilizing through 2025, with Shoals positioned to benefit from both the utility-scale solar recovery and emerging opportunities in data center infrastructure,” he noted in his research report. The analysis cites data from the Solar Energy Industries Association projecting a 12% growth in U.S. solar installations next year.
Beyond traditional solar applications, Shoals has been expanding its electrical balance of systems (EBOS) solutions into the data center market, potentially opening a significant new revenue stream. According to recent earnings calls, the company has secured initial orders for data center applications, with management indicating this could become a meaningful contributor to growth by late 2025.
“The data center opportunity represents a natural extension of Shoals’ core competencies in managing electrical connections and infrastructure,” explained CEO Jason Whitaker during the company’s latest earnings call. “We’re seeing strong initial traction with several tier-one data center operators.”
Financial data supports this cautiously optimistic outlook. Despite recent challenges, Shoals maintained a gross margin of 35.7% in its most recent quarter, demonstrating resilience in its business model even amid industry headwinds. The company reported $109.3 million in revenue, slightly above analyst expectations.
What makes Shoals particularly interesting within the solar ecosystem is its focus on the “picks and shovels” approach to renewable energy. Rather than manufacturing panels or developing projects directly, Shoals provides critical electrical balance of systems components that connect solar panels to the grid. This position in the value chain provides some insulation from the commodity pricing pressures that have plagued panel manufacturers.
Market data from Wood Mackenzie indicates that the EBOS segment represents approximately 10-15% of total solar project costs, a proportion that has remained relatively stable despite fluctuations in panel pricing. This stability provides Shoals with pricing power that many other solar industry participants lack.
The upgrade also notes the potential benefits Shoals might derive from Inflation Reduction Act incentives, which continue to drive domestic manufacturing. The company’s “Made in America” focus positions it well to capitalize on tax credits and incentives available under the legislation.
However, challenges remain. The solar industry continues to face supply chain constraints, interconnection delays, and project financing hurdles. Bank of America’s renewable energy analyst Julien Dumoulin-Smith has pointed out that utility-scale solar project timelines have extended by 6-9 months on average compared to pre-pandemic norms, creating headwinds for component suppliers like Shoals.
Interest rate trajectories will also play a crucial role in Shoals’ recovery. The Federal Reserve’s recent signals of potential rate cuts could significantly benefit renewable energy financing, potentially accelerating project development cycles. Goldman Sachs economists currently project three quarter-point cuts in 2025, which could provide additional tailwinds for solar development.
From a technical standpoint, Shoals’ stock shows signs of bottoming after its prolonged decline. Trading volume has increased on recent positive sessions, suggesting improving investor sentiment. The company’s current enterprise value to EBITDA ratio of approximately 15x sits well below its historical average of 23x, potentially offering value for investors willing to look beyond near-term challenges.
For perspective, Shoals trades at a discount to some comparable companies in the renewable energy infrastructure space. Competitor Enphase Energy currently trades at approximately 19x forward EBITDA, while SolarEdge Technologies commands a 17x multiple despite facing similar industry challenges.
Looking ahead, analysts project Shoals will deliver approximately $420 million in revenue for fiscal 2025, representing 10% year-over-year growth. While this marks a deceleration from the company’s historical growth rates, it reflects a more sustainable trajectory in the current environment.
The company’s balance sheet remains solid, with approximately $95 million in cash and manageable debt levels. This financial flexibility provides Shoals with runway to weather continued industry volatility while investing in product development and manufacturing capacity.
For investors considering the solar space, Shoals represents an interesting entry point given its infrastructure-focused business model, emerging data center opportunity, and favorable rating change. However, prudent portfolio positioning would suggest sizing such positions appropriately given the ongoing volatility in the renewable energy sector.
As one Morgan Stanley analyst recently noted, “The solar industry is experiencing a reset rather than a structural decline. Companies with differentiated technologies, strong balance sheets, and diversified end markets will likely emerge stronger from this downcycle.”
Shoals appears to check those boxes, potentially positioning it for recovery as the renewable energy landscape stabilizes in 2025.
