stock soared Friday on speculation the contract-electronics manufacturer could sell or spin off its Nextracker solar-tracking hardware business. The devices track the path of the sun throughout the day, and adjust solar panels, making them more efficient.
Earlier this week, a Nextracker rival called
(ticker: ARRY) had an impressive initial public offering. Array’s stock priced at $22 each, and then nearly doubled. The stock is now just under $40, giving Array a market value of more than $5 billion. That has shed light on the value of Nextracker, which is 100% owned by Flex (FLEX). Flex bought Nextracker in 2014 for $330 million.
Both Array and Nextracker make systems used in utility class solar installations; in its IPO filings Array cites Nextracker as one of a handful of direct competitors. Array also notes in the filing that it has a pending theft of trade secrets lawsuit against Flex and Nextracker related to the hiring of a former Array employee.
In any case, the Array IPO seems to have highlighted a dramatic market disconnect on the value of the Nextracker business, no doubt at least in part due to the fact that Flex does nor break out Nextracker on its financial statements.
RBC Capital analyst Robert Muller on Friday raised his rating on Flex stock to Outperform from Sector Perform, while boosting his price target on the stock to $16 from $12.
“We believe the market is under-appreciating Flex’s 100% ownership interest of Nextracker, the world’s largest solar-tracking company,” Muller wrote in a research note. “Following Array Technologies’ IPO, we see a clear path by which Flex could unlock its stake either via a spinout or an outright/partial sale. Regardless of any corporate action taken, we upgrade Flex…given the embedded value.”
Muller noted that the current Flex valuation “shows a significant disconnect from that of its smaller competitor.” If you applied a similar valuation, he adds, you can get a $20 a share value for Flex.
“We believe simply providing additional financial disclosure of its Nextracker asset would better allow the market to value its stake,” he wrote. “While we estimate revenue and operating margins as part of our analysis, they are just that—estimates. Better disclosure should allow for more direct valuation and comparison to its publicly traded peer.”
He adds that the best alternative would be a spin. “September marked the five-year anniversary of Flex’s 2015 acquisition [of Nextracker], which should allow Flex to execute a tax-free spinoff. Flex could simply sell outright or in part its ownership, which would help set a marker for the rest of its ownership.”
Likewise. J.P. Morgan analyst Paul Coster on Friday repeated his Overweight rating on Flex shares, boosting his target to $16, from $14. He thinks Nextracker could be a $1 billion run-rate business. “Nextracker probably represents only about 5% of Flex’s revenue, but could account for a third or more of Flex’s current market cap. We don’t think this is priced into the stock,” Coster wrote.
Flex shares have spiked 12% to $14.05, which gives the company a market cap of $7 billion. If Nextracker was worth as much as Array, it would account for the vast majority of Flex’s valuation.
Asked to comment, Flex responded that the company is in its quiet period and “not able to discuss this topic at this time.”
Write to Eric J. Savitz at [email protected]