2023-05-01 03:31:12 ET
Summary
- Symbotic is expected to sustain high double-digit growth as it converts its backlog of over $12 billion.
- Symbotic's disruptive technology has gained endorsements from leading players in the grocery and general merchandise retail industry, including Walmart.
- The estimated market opportunity for Symbotic stands at $393 billion, providing significant room for expansion.
- I keep a buy rating on the stock and keep a year-end price target of $38.
Thesis
I believe Symbotic Inc. ( SYM ) will continue to grow at a high double-digit rate as it continues to convert its backlog of more than $12 billion. Symbotic's comprehensive AI-enabled robotics and automation platform for warehouses has received endorsements from major retailers and wholesalers such as Walmart Inc. ( WMT ) and Albertsons Companies, Inc. ( ACI ). The platform integrates cutting-edge technologies, including robotics, machine vision, navigation, autonomous routing, artificial intelligence, and rapid charging. I believe Symbotic's end-to-end warehouse automation solution has the potential to revolutionize the warehouse industry and reshape the movement of goods across manufacturing, distribution centers, retail stores, and e-commerce applications. Hence, I keep a buy rating on the stock and keep a year-end price target of $38, based on a forward EV/sales multiple of 1.5x applied to the consensus FY24 revenue estimate.
Positioned to Transfer the Warehouse Automation Market
Symbotic, a company specializing in end-to-end robotics solutions and AI-enabled data platforms, is poised to revolutionize the warehouse market, in my view. By addressing the shortcomings and inefficiencies of traditional warehouse and distribution center operations, the company's advanced automation solutions have gained endorsements from major players in the general merchandise and grocery retail industries. Symbotic aims to tap into a market that is still in the early stages of transitioning to a more efficient and fully automated model.
Symbotic has developed a disruptive automation platform that streamlines the processing of pallets and cases, dramatically speeding up the movement of goods through the supply chain with an astonishing accuracy rate of 99.9999%. Furthermore, it enables customers to reduce their inventory and operating costs.
The market opportunity for Symbotic is substantial, estimated to reach $393 billion. The company's initial focus is on the ten largest brick-and-mortar companies across five verticals. By identifying the North American warehouses of these companies, Symbotic has estimated an addressable market opportunity of approximately $133 billion. However, the company's ambitions extend beyond these verticals, as it plans to expand into adjacent industries like home centers, consumer packaged goods (CPGs), apparel, and third-party logistics ((3PL)). Additionally, significant growth opportunities exist in international markets, particularly Europe. Symbotic believes its total addressable market exceeds $373 billion.
What sets Symbotic apart is its end-to-end solution, which encompasses all aspects of warehouse logistics. From the initial merchandise intake and depalletization in the distribution center to efficient storage and re-palletization for outbound delivery, the company's platform covers it all. The platform, designed for a lifespan of 25-30 years, utilizes mobile robots that can navigate densely structured environments, maximizing storage capacity while providing easy access. Powered by AI-enabled self-learning software, Symbotic's platform incorporates advanced sequencing and palletizing algorithms. These algorithms visualize processes in three dimensions and enable the systems to operate at exceptionally high throughput rates.
Symbotic's proprietary technology allows for the depalletization of up to 1,800 cases and 200 SKU layers per hour, with the ability to palletize a case using one of two robotic arms in under three seconds. The company's automation and software empower customers to create "rainbow pallets" tailored to specific store plans, assembling products on pallets based on store aisle requirements. Ultimately, Symbotic's technology enables true "lights-out" operation, achieving 100% uptime with zero human intervention.
Tailwinds for Warehouse Automation Market are in Place
Warehouse operators in various industries, such as grocery, general merchandise retail, manufacturing, and third-party logistics, recognize the significance of robotics and automation in addressing long-standing labor and productivity challenges. Even in the e-commerce sector, where new capacity investments have been scaled back, automation is enhancing the efficiency of existing distribution infrastructure. Walmart's recent announcement of reducing headcount in its e-commerce distribution facilities reflects the e-commerce slowdown that has prompted cost-saving measures at companies like Amazon. However, what often goes unmentioned is that advancements in automation technologies enable warehouse operators to maximize their existing facilities and enhance worker productivity.
Deployment at Walmart Accelerating
With the involvement of its outsourcing partners, Symbotic is now prepared to accelerate the implementation of projects for its major customer, Walmart. Walmart is planning to install Symbotic systems in all 42 of its regional distribution centers in the United States. Furthermore, Symbotic is deploying its systems with existing customers in the grocery wholesaling vertical. The first Symbotic deployment at a Walmart regional distribution center has already taken place in Brooksville, Florida. Additionally, operational Symbotic installations are believed to be present at Walmart distribution centers in Menomonie, Wisconsin, and Palestine, Texas. Several other projects are either pending or already in progress at distribution centers in Douglas, Georgia, Grove City, Ohio, Midway, Tennessee, and a second project is scheduled for New Braunfels, Texas. As of the end of 2022, Symbotic had 22 active system deployments across multiple customers, an increase from 17 at the end of 2021. It is important to note that a significant portion of Symbotic's backlog of $12 billion consists of the multi-year Walmart program, with additional systems to be installed at United Natural Foods, Inc. ( UNFI ) and a second installation at C&S Wholesale Grocers.
Valuation
I have looked at various valuation metrics in valuing Symbotic and believe an EV/Sales multiple is the most appropriate. The expected robust scale-up in the business over the next 2-3 years leads me to my end-of-year price target of $38, which is based on a forward EV/sales multiple of 1.5x applied to the consensus FY24 revenue estimate . While my EV/sales multiple is at the upper end of the peer group range, it is to be noted that SYM's $12 billion , non-cancellable backlog affords the company strong visibility into revenue over the next several years, with the possibility for a significant improvement in profitability.
Risks
There are some risks associated with my bullish thesis on Symbotic, including the potential for increased costs and delays in system deployments, which could have an impact on the company's revenues and margins. While the installation of Symbotic's systems in all of Walmart's regional distribution centers is a significant validation of the technology, investors will likely be seeking evidence of progress in diversifying the business with both existing and new customers. Failure to expand its revenue streams and customer base could limit the potential for growth in the company's shares.
Final Thoughts
Symbotic's disruptive technology has received endorsements from major players in the grocery and general merchandise retail industry, most notably from its largest customer, Walmart. With a backlog exceeding $12 billion, I believe Symbotic is well-positioned to achieve strong revenue growth in the coming years as it converts this multi-year backlog to sales. With an estimated market opportunity of $393 billion, Symbotic targets large brick-and-mortar companies and plans to expand into adjacent industries and international markets. I remain bullish on the stock and keep an end-of-year price target of $38 on the stock.
For further details see:
Symbotic: Transforming Warehouse Operations With End-To-End Automation Solution