What happened
Shares of TPI Composites (TPIC -0.26%) shot up in early morning trading Thursday, popping by as much as 11%. In recent months, the world's largest independent manufacturer of composite wind blades has received multiple analyst downgrades, and its shares have been slammed. So when an analyst upgrades such a stock, it's understandable that the market would react strongly. As of 12:21 p.m. ET, the stock's gains had moderated, though it was still up by 4.4%.
So what
UBS (UBS 2.12%) analyst Jon Windham just upgraded his rating on TPI Composites stock to neutral from sell, according to StreetInsider.com.
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In early November, Windham downgraded his rating on the stock and slashed his price target by more than half to $20 a share. At that time, he said he saw supply constraints, the potential extension of the federal government's renewable electricity production tax credit, and margin pressures for TPI Composites' key customers as notable factors that would hit demand for its wind blades and drag on its earnings through 2022.
TPI Composites is already trading well below Windham's prior price target -- it closed Wednesday's session at $15.17 a share. Now, the analyst believes the stock's valuation reflects his view for "prolonged demand and earnings weakness" for the company.
So, while he did upgrade his rating on TPI Composites stock, Windham decreased his price target on it to $16 a share, meaning the analyst pretty much sees it stagnating where it is now for the next year.
TPI Composites shares sank by a whopping 47% in the month of November, driven downward by a dismal set of third-quarter numbers, a weak outlook, and multiple analyst downgrades that followed hard on the heels of its earnings release. Windham also pointed out three reasons behind the stock's sharp drop: Weak Q3 numbers and guidance cuts; the subsequent reductions in analysts' consensus estimates for its adjusted earnings before interest, tax, depreciation, and amortization (EBITDA); and equity dilution from the stock warrants the company recently issued.
Now what
As a contract manufacturer of wind blades for some of the largest wind turbine companies in the world, TPI Composites has a really promising business, with obvious growth catalysts as nations across the globe work to transition more of their energy production from fossil fuels to renewable sources. Yet the company faces multiple challenges in the near term, and with management projecting low demand for wind blades in 2022 as well, it's not surprising to see analysts being cautious about their price targets on this renewable energy stock.
