TPI Composites: Looks Destined To Post Further Losses In FY22

Wind farm turbines caught in sunset sky. Beautiful contrast with the blue sea. ecological concept. 3d rendering

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“People never know what they are capable of until all other options run out.“― Lance Conrad, The Price of Loyalty

Today, we are circling back on TPI Composites (NASDAQ:TPIC). The last time we put this wind blade maker in the spotlight was back in the summer of 2019 when the stock traded under $25.00 a share. The stock soon tripled, although we cashed our profits in the low $50s. Since then, it has been all downhill for the shares and the stock has had a steep decline in recent months as the air has gone out of alt-energy equities. Late in 2021, insiders added to their holdings in the stock. Are the shares now oversold once again? We attempt to answer that question via the analysis presented below.

TPIC Stock Chart

Seeking Alpha

Company Overview:

TPI Composites is a manufacturer of composite wind blades for wind turbine OEMs. The company is based in Scottsdale, AZ. TPI Composites is the only independent manufacturer of composite wind blades for the wind energy market. Its global manufacturing footprint includes facilities in U.S., China, Mexico, Turkey and India as well as additional engineering development centers in Denmark and Germany. The stock currently trades for just under $13.00 a share and sports an approximate market capitalization of $500 million.

TPI Composites Footprint

February Company Presentation

Fourth Quarter Results:

On February 24th, the company reported fourth quarter results. They were not pretty. TPI Composites had a loss of $2.39 a share on a GAAP basis, which badly missed expectations. Revenues fell just over 16% from Q42020 to just under $390 million, which slightly topped the consensus.

Among other factors for the poor performance during the quarter cited by management were ‘supply chain costs and constraints, logistics costs and the lingering effects of COVID‘. Nor does leadership expect these headwinds to dissipate early in 2022 based on this commentary on their earnings press release.

While we are seeing the macro headwinds persist into 2022, we continue to focus on the execution of what is in our control while navigating the near-term operating environment and working collaboratively with our customers to leverage our global footprint and our local supply chains. When demand does rebound, we will be ready to efficiently and cost-effectively meet their needs.”

Here is a good graphic that captures key metrics of performance in Q4 and FY2021 in comparison to similar periods in 2020.

Siwek.

KPIs 4Q’21 4Q’20 FY’21 FY’20
Sets¹ 768 988 3,255 3,544
Estimated megawatts² 3,219 3,525 12,989 12,080
Utilization3 71% 92% 76% 81%
Dedicated manufacturing lines4 54 53 54 53
Manufacturing lines installed5 54 55 54 55

  1. Number of wind blade sets (which consist of three wind blades) produced worldwide during the period.
  2. Estimated megawatts of energy capacity to be generated by wind blade sets produced during the period.
  3. Utilization represents the percentage of wind blades invoiced during the period compared to the total potential wind blade capacity of manufacturing lines installed during the period.
  4. Number of wind blade manufacturing lines that are dedicated to our customers under long-term supply agreements at the end of the period.
  5. Number of wind blade manufacturing lines installed and either in operation, startup or transition during the period.

TPI Composites 2021 Highlights

February Company Presentation

The company had a lousy year in 2021 due to factors mentioned in the paragraphs above. TPI Composites saw its manufacturing capacity utilization fall to 71% from 92% in 2020, although that was partially offset by 17% higher average selling price per blade. Management does project utilization to pop back somewhat in FY2022 and cap ex needs will be minimal.

TPI Composites 2022 Guidance

February Company Presentation

In addition, the company has a significant order backlog (below). That said, supply chain challenges will continue to be impediments. I also worry that the recent lockdowns in Shanghai could spread to other regions in China as the country continues to pursue a ‘Zero Covid‘ policy.

TPI Composites Order Backlog

February Company Presentation

Analyst Commentary & Balance Sheet:

The analyst community has soured on the company’s prospects. So far in 2022, a half dozen analyst firms including Stifel Nicolaus and JPMorgan have reiterated or downgraded the name to Hold, Sell or Neutral ratings on the stock. Only Evercore ISI ($27 price target) and Raymond James ($25 price target) have maintained Buy ratings on TPIC this year.

TPI Composites Balance Sheet

February Company Presentation

The company’s balance sheet appears in good shape even after just over $60 million in negative cash flow in FY2021. In mid-December, four insiders added just over $1.5 million in aggregate to their holdings via insider purchases. It was the first insider buying in the stock since May of 2020. However, there has been no insider activity in the shares so far in 2022. Just over 10% of the outstanding float in TPIC is held short.

Verdict:

The analyst consensus has fairly wide range of FY2022 projections. The 16 analysts that cover TPIC has the company losing roughly 90 cents to $3.15 a share on revenues of between approximately $1.65 billion and $1.8 billion.

The shares appear cheap based on a price to sales or price to order backlog basis, and I wish I could say the huge decline in the shares represents a significant buying opportunity. However, the company looks destined to post further losses in FY2022 as it faces the same headwinds as most of 2021. Given we are at the beginning of monetary tightening and there is a clear slowing in both the domestic and global economies, a good portion of the world could potentially be in recession in 2023 as well. Therefore, we are passing on any investment recommendation around the stock at this time.

“It’s not your enemies who condemn you to solitude, it’s your friends“― Milan Kundera

Bret Jensen is the Founder of and authors articles for the Biotech Forum, Busted IPO Forum, and Insiders Forum

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