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Shoals Technologies (NASDAQ:SHLS) -2.9% in Tuesday’s trading after Citigroup double downgrades the solar energy equipment supplier to Sell from Buy with a $5 price target, ahead of an initial determination of its patent infringement case against Voltage.
Shoals’ (SHLS) infringement case has an initial determination slated for around July 12, and Citi analyst Vikram Bagri says that while ~58% of Section 337 cases decided on the merits have historically found infringement, ITC staff issued an opinion May 14 arguing against Shoals’ claims, believing the company has failed to show a violation of Section 337 by Voltage based on infringement of its ‘153 patent.
Predicting an outcome based on historical case statistics alone is difficult given similar odds for a win or a loss, but “the Commission Investigative Staff opinion on the case skews the odds meaningfully against Shoals,” Bagri writes, adding that if no violation is found, increased competition should pressure gross margins into the mid-20% range, in-line with tracker margins ex-IRA.
Bagri notes staff opinion is just one input to the judge’s decision, and many details are not on public record and may be of significance, adding if Shoals (SHLS) wins the case, the stock could climb to ~$11.
