Nextracker Looks Like Another Solar Winner — And A Subscriber Update
FSLR looks like the highest risk/highest reward play in solar — but NXT has a strong bull case itself
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The Case For Nextracker
On Sunday, we detailed the case for U.S. solar in our bullish recommendation on First Solar FSLR 0.00%↑. A key part of our thesis centered on the idea that domestic politics are more favorable for solar than the market believes. Over the past week, as odds of a “red wave” have weakened, FSLR has outperformed the S&P 500 by nine points.
But another intriguing name in U.S. solar, which we mentioned on Sunday, has not caught the same bid. Nextracker NXT 0.00%↑, a manufacturer of tracking systems, is down almost 1% over the past week, only two points better than the index. While the NXT and FSLR stories have notable differences, they are similar in an important way: each is a clear leader in its market niche, with substantial runway for growth. With increasing odds of the status quo holding, NXT seems like it should be the next solar name to find a rally.
An Excellent Business
Nextracker manufactures what are known as single-axis trackers, a ground-mounted system of steel supports, motors, gearboxes, and controllers that allows solar panels to shift their position over the course of the day. Per figures from BloombergNEF cited in the S-1 of rival Array Technologies ARRY 0.00%↑, solar farms with trackers can drive up to 25% more energy generation (Nextracker management has said up to 30%), while tracking systems at the time cost about 7% more than the fixed-tilt (ie, immovable) alternative. As a result, trackers see high utilization despite the higher upfront costs: about 80% of installations use trackers instead of fixed-tilt.
Nextracker also offers a software program, True Capture, which integrates with the tracking system to further optimize performance. Actual software revenues are fairly low — about 2% of the total — but the product serves to differentiate what sounds like a fairly commoditized product. For instance, Nextracker offers a “hail stow” capability, which rotates panels away from hailstorms, which can do extensive (and expensive) damage:
source: Google Image Search
Nextracker was founded in 2013 as a unit of module maker Solaria1, and was by all accounts an instant hit. Within barely a year, the business was spun out. Solaria chief executive officer Dan Shugar, a long-time solar veteran, left the company to lead Nextracker. Within a year, the company was targeting over 2 gigawatts (GW) in installations in 2015 — a year in which the U.S. market as a whole only installed 7.3 GW.
That year, contract manufacturer Flex FLEX 0.00%↑ acquired Nextracker for $245 million plus an $85 million earnout. In 2022, Flex announced plans to spin the tracker business; that separation was finally completed at the beginning of this year.
Nextracker dominates the tracker market. Per third-party research, it’s been the global leader in GW shipped for eight consecutive years. That’s a stunning achievement for a business that is only eleven years old. In 2015, Shugar noted that Array was “the big dog of independent tracker companies”. Nextracker is now clearly “the big dog”: in its fiscal 2024 (ending March), it shipped 26 GW. In calendar 2023 Array, the second-largest tracking business, shipped just 15 GW2. The rest of the market is relatively fragmented and mostly private. One rival, FTC Solar FTCI 0.00%↑ is in significant financial trouble, with shares down 96% since a 2021 initial public offering and gross profit sharply negative in Q1.
Nextracker is simply the best business in the space. It’s not just the market share leader, but growing its edge (FY24 revenue for Nextracker was up 31%. Array’s sales declined over the same period). Its systems and software can manage different terrains (including undulation) and different geographies. The company even has global reach, with 38% of FY24 revenue coming from outside the U.S. All that came in just eleven years, and that history strongly suggests that Nextracker is best-positioned in the industry to capitalize on further solar growth going forward.