STEM - Stem downgraded at Wolfe citing headwinds in front-of-the-meter market

2023-04-06 12:15:26 ET

Stem ( NYSE: STEM ) -2.5% to a 52-week low in Thursday's trading as Wolfe Research downgraded the stock to Peer Perform from Outperform, saying the investment case has not played out as hoped.

The thesis for Stem ( STEM ) has drifted from targets established during the company's 2021 SPAC listing which were premised on growing share in the front-of-the-meter market and improving margins via increased deployments of the company's Athena software platform, but "neither have played out as hoped," according to Wolfe's Steve Fleishman.

"Bookings growth has been strong, but we see backlog conversion remaining elongated which creates a headwind for higher margin software," Fleishman wrote, adding that Stem ( STEM ) "will need to rebase long-term expectations again and that sentiment likely stays depressed until execution becomes apparent."

Fleishman also was "caught off guard" by the company's recent 4.25% convertible offering, saying he "did not anticipate funding needs in 2023, which raises questions about Stem's anticipated cash generation outlook."

Also citing convertible issuance "weighing on Street confidence given working capital considerations," Bank of America downgraded Stem earlier this week to Underperform .

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