Shoals’ 2023 Guidance Is Down the Fairway of Our Expectations

Shoals SHLS reported fourth-quarter results and unveiled its 2023 outlook, which was in line with our expectations. We maintain our $20 fair value estimate given limited changes to our prior forecast and view shares as overvalued. We remain impressed by Shoals’ near-term margin profile but have concerns on the durability of these margins given our no-moat rating.

Shoals navigated solar market headwinds well in 2022, reporting revenue growth of 53% year on year as market share gains and contributions from its 2021 ConnectPV acquisition drove growth. Full-year gross margins of 40% and adjusted EBITDA margins of 28% continue to be among the best in our broader solar coverage.

Guidance for 2023 came in squarely in line with our expectations. Revenue is expected to grow approximately 50% at the midpoint as U.S. utility-scale solar installations rebound sharply following trade disruptions in 2022. In addition, margins are expected to remain robust, with gross margins of 40% and adjusted EBITDA margin in the range of 30% also consistent with our expectations.

Beyond the formal financial guidance, 2023 is likely to mark an important year of evolution for Shoals. The company is planning to expand its manufacturing footprint to help plan for future growth. This is likely to include a new facility within the U.S. but could also include its first international facility. In addition, we expect further details on initial sales contributions from strategic growth priorities in international markets and electric vehicle charging as the year progresses. Furthermore, the company is looking to name a new CEO during the year, following the recently announced resignation of Jason Whitaker due to health reasons. Jeff Tolnar, formerly head of the company’s EV charging efforts, has been named interim CEO.