Beaten-up Nextracker provides investors a reason to believe. But timing is key here

Published Thu, Oct 31 202410:54 AM EDT

Kevin Stankiewicz @in/kevin-stankiewicz-b5593466

Shares of troubled Nextracker jumped Thursday, the morning after delivering strong quarterly results and increases to the solar company's full-year profitability outlook and project backlog. Revenue in its fiscal 2025 second quarter totaled $635.6 million, up nearly 11% year over year and ahead of the consensus estimate of $615.4 million, according to LSEG. That marks seven straight quarters of double-digit revenue growth. Adjusted earnings per share (EPS) of 97 cents in the three months ended Sept. 27 was up 49% on an annual basis and easily topped the 61-cent estimate, LSEG data showed. NXT YTD mountain Nextracker's year-to-date stock performance. The stock soared around 22% on Thursday, erasing some of its steep losses in recent months. Nextracker lost around 32% of its value in between its August earnings report and Wednesday's close — a frustrating decline. In addition to disappointing backlog commentary accompanying the August release, presidential election uncertainty has weighed on shares and the broader solar complex in recent months. Bottom line This was a sigh-of-relief release. For now, we're keeping our hold-equivalent 2 rating on the stock due to the election overhang. It's too early to act, given the results of next week's contests could move shares of Nextracker and its peers considerably. In general, analysts think a Republican sweep of the presidency, Senate and House of Representatives would be the most bearish near-term outcome for solar stocks. "We were pleasantly surprised and gratified that this was the best solar earnings we've seen this quarter," Jim Cramer said Thursday. "Red states and blue states both endorse solar, so it shouldn't be so political." Nextracker Why we own it: Nextracker makes industry-leading tracking technology, which enables large-scale solar panel installations to follow the sun's movement and increase their power generation. The stock has been volatile and disappointing, but we see this investment as a long-term bet on growing electricity demand, driven in large part by artificial intelligence computing. Competitors: Array Technologies Weight in the Club portfolio: 0.72% Initiation: June 27, 2024 Most recent buy: July 3, 2024 Arguably the best part of Nextracker's report was the increase in its backlog — even more so than the revenue and earnings beats. Why? Because questions about Nextracker's backlog overshadowed stronger-than-expected headline results in August. It was a different, more encouraging story Wednesday night. Nextracker said its record backlog now stands at more than $4.5 billion, with roughly 90% expected to be realized over the next eight quarters. The company in August had characterized its backlog as being "over $4 billion" for the second straight quarter while adopting slightly different language on the realization timeline, a one-two punch that spooked investors. At that time, executives said 80% would be realized "over" the next eight quarters, after previously saying it would be "within" eight quarters. "We're getting orders with shorter horizons and that's what fed the backlog increase and caused that metric to go from 80% to 90%," Nextracker President Howard Wenger said on the earnings call. The change in August was attributed to project lifecycles getting a bit longer due to the permitting process and interconnection, an industry term for hooking up the solar field to the broader electricity grid. Regardless of the reasons, investors including us did not appreciate the change in the moment and in the difficult weeks of trading that followed. Another change that caught our eye in Wednesday night's release: Sales of licenses for Nextracker's TrueCapture software represented more than 2% of revenue in the quarter, providing a boost to profitability because it carries a higher margin than hardware. CFO Chuck Boynton said the amount of software revenue in fiscal 2025 Q2 "will probably not repeat" in the third and fourth quarters. "Our plan is that it will be more like 1% to 2%. In the prior quarter, Nextracker described TrueCapture revenue as "not material" to its results. Now it's being quantified. Finally, Nextracker said it will start deliveries of 100% domestically made solar trackers by the end of calendar 2024 — previously, the ship date had been targeted as early next year. This could make its products more attractive to customers since they will be able to take advantage of a 10% investment tax credit included in the Inflation Reduction Act of 2022. Guidance Nextracker reaffirmed its fiscal 2025 guidance for revenue while upping its outlook for a pair of profitability metrics. Here's where things stand now: 2025 revenue guidance: $2.8 billion to $2.9 billion 2025 adjusted EBITDA guidance: $625 million to $665 million, up from $600 million to $650 million (EBITDA is short for earnings before interest, taxes, depreciation, and amortization) 2025 adjusted EPS guidance: $3.10 to $3.30, an increase from $2.89 to $3.09 To be sure, in this environment, simply reiterating the revenue guidance was good enough. That's because doing so implies "no impact to their shipment visibility from customer pushouts plaguing other Solar OEMs," original equipment manufacturers, analysts at Mizuho Securities wrote in a note to clients. OEM is shorthand for original equipment manufacturers. The firm reiterated its top-pick designation on Nextracker and buy-equivalent rating. We're not nearly as bullish. Nevertheless, that analysts' commentary and the market reaction on Thursday are welcome developments. (Jim Cramer's Charitable Trust is long NXT. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Peter Cade | Stone | Getty Images

Shares of troubled Nextracker jumped Thursday, the morning after delivering strong quarterly results and increases to the solar company's full-year profitability outlook and project backlog.