The trunk is a game about the future of batteries. Its stock can double.

Batteries are being replaced by renewable energy, which plays a much larger role than global power. And that’s great news for a power storage provider

Stem.

Renewable energy, which accounted for only 10 percent of US energy 20 years ago, now generates 20%, and that United States, like other countries, must continue to play a role in fostering fossil fuels.

The Biden administration wants to hit a 100% carbon-free generation by 2035. For that, the appliances need a lot of high-capacity batteries to store the energy generated by wind and solar panels. , So there is electricity to distribute when they are not.

That’s where Stem comes from. A San Francisco-based company sells large batteries for utilities and industrial companies to manage them.

The company is small; After merging with Star Pick Energy Transfer in April, the market price fell 20% to $ 21.34 billion to $ 2.8 billion. But Stem already has dozens of utility customers and can deploy more than 900 systems and generate gigabytes of electricity to power 100 homes a year. The bet on Stem is about the future of renewable energy.

Headquarters: San Francisco
Latest price: $ 21.34
YTD change; 4.3%
Market Price (Bill) $ 2.8
2022 E Sale (Mill) $ 315
2022 E Net Revenue (MIL) -16 dollars
2022E E.P. -0.10 $
2022E EV / SALE 7.7

E = estimate; EV = organizational value

Source Bloomberg

The trunk does not make batteries, for good reason. Lithium-ion batteries used for commercial storage applications have become a commodity in a market dominated by a few big players.

LG Chem

(051910. Korea) and

Modern Amperex Technology

(300750 China).

He said the transition has been going on for two years, he said. For example, in 2020 Australia bought a huge battery deal from there

Tesla

(TSLA) to store electricity from a large wind farm in a famine-stricken area of ​​the country.

Power prices vary throughout the day. Industrial companies typically pay a rate based on the maximum price they charge each month. Battery failures have caused many solar power systems to overload. These can replace some of the utility-generated electricity, especially during high-use times.

Hiring renewable energy and batteries to replace utility power is known as “behind the meter”. Stem loads the batteries and provides software that uses artificial intelligence and machine learning to optimize their performance, automatically switching between battery power, on-site generation and grid power. “Industrial companies can save up to 30%,” said John Carrington, general manager of Stum.

If tax credits are included in the Biden Green Energy Plan to install battery storage, Stem stock could be useful if credits encourage people to buy electric cars in the same way. The real estate industry needs federal tax support in the coming months.

But even without tax breaks, Stem shares look attractive. Mandolo has an “Outperform” rating on them, primarily for Stem’s 30% market share behind-the-scenes market, with AutoGrid as part of Enel.Italy and power software, such as Enel X.

The tree had sales of $ 19 million in the second quarter and is expected to reach $ 147 million a year by about $ 36 million. Industrial companies do most of the work, balancing utilities and other power plants.

Stem, which will soon be trading at an estimated eight times the value of the company by 2022, looks expensive. But by 2022, revenue is expected to more than double to $ 315 million. Russell’s 1000 Index is expected to sell about four times as much as 2022 sales, but revenue is expected to increase by 9% by 2021 to 2022. Special public acquisition company.

Mandela estimates that Stem battery life will increase by an average of 48% a year. A.D. By 2030, it will have to generate $ 757 million in revenue annually before interest, tax cuts, reductions and reductions. That gives him the $ 48 price target, double the closing of Friday, or 2023 Ebida estimates. Accordingly,

Infusions Energy

(ENF), another renewable-technology company, will trade 35 times in 2023 estimates.

Possible rewards don’t come without risk, and the stem has a lot. For one, until 2022, it will not be profitable. And if the sale of electric vehicles increases, this may limit the supply of batteries for permanent power applications. And competition is definitely on the rise.

Many of these concerns may already be reflected in the merger since the merger. The $ 475 million, however, must help sustain the company until it starts generating positive cash flow from operations.

“You need a good balance sheet,” said Carrington, CEO. “Opponents look at you and say, ‘Will you be here in 20 years?’ “Because Stem got the extra money, business questions were raised,” he said. Don’t be surprised if he does.

Write Al root at allen.root@dowjones.com

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