Orion Energy Systems, Inc. (“OESX”) – The Investor Weekly Stock Report

Value Stock Pick – 2022

OESX is my value play for 2022.

The stock has traded as low as $2.65 in recent weeks, off a high of $11.00 in January 2021.

At this point in time, the current market price does not accurately reflect the underlying fundamentals.

Summary

Orion is well positioned for a rebound in customer activity as business conditions normalize and customers launch delayed projects and as we pursue new projects. We also believe Orion’s U.S.-based manufacturing focus represents an important advantage for us as it enables us to respond quickly to customer needs.

Revenues grew $12 million or 33.2% year-to-date (past nine months), demonstrating progress in diversifying the revenue base. Management is confident in a long-term strategic plan of building a $500 million annualized revenue business over about a 5-year period, capitalizing on average organic growth of at least 10% per year, supplemented with external growth through acquisitions, partnerships and other initiatives.

– Energy Services: achieved solid growth, where revenue is up $7.2 million or 91.5% year-to-date.

– Distribution Services: also experienced growth with revenue up $2.2 million or 13.7% year-to-date.

OESX recently acquired Stay-Lite Lighting in January 2022. Orion has recently expanded into maintenance services. Maintenance services fit well with the holistic approach the company is taking to serve its customers with the ability to provide them a complete solution from design and engineering to manufacturing, installation, and now lighting and electrical maintenance.

Company Profile

Orion Energy Systems, Inc. is a leading LED lighting manufacture that provides a suite of intelligent controls. On the service side, Orion provides energy management solutions for commercial office and retail, exterior area lighting, and industrial applications.

The company operates in three segments: (1) Orion Engineered Systems, (2) Orion Distribution Services, and (3) Orion U.S. Markets.

The company serves customers directly and through independent sales agencies and distributors, and electrical contractors and energy service companies. Orion Energy Systems, Inc. was incorporated in 1996 and is headquartered in Manitowoc, Wisconsin.

Orion operates in a variety of markets including: industrial, commercial, retail, automotive, logistics, healthcare, agriculture, and public sector. Long-term customers include names like GE, Coca Cola, Kroger, Pepsico, Ford, Walmart, Best Buy, Costco, Amazon, Anheuser-Busch, Nestle, Sysco, Kraft Heinz Mondalez, Toyota, US Foods, Sam’s Club, Dollar General, USPS, and the US Navy.

Capital Structure

Orion energy is a microcap stock with a market capitalization below $100 million.

What’s Hurting OESX? – Revisions & Negative Momentum

OESX is down nearly 60% over the past twelve months.

1. Revisions

Orion has had 2 downward revisions of EPS in the past quarter.

As anticipated, OESX Q3 2022 revenue decreased to $30.7 million versus $44.3 million in Q3 ’21, which had benefited from a rapid rebound activity following initial COVID-19 disruptions.

The company’s current operating performance is being impacted by customer LED lighting project delays due to supply chain disruptions and COVID-19 related impacts to their businesses. Nonetheless, OESX’s revenue for the first nine months of fiscal 2022 increased to $102.3 million versus $81.3 million a year ago, representing an increase of 25.8%. And the company has been able to improve its gross profit percentage in the first nine months of fiscal 2022.

2. Negative Momentum

Financials

Revenue
LTM Revenue was $137.8 million, and FY 2021 was $116.8 million.

EBITDA
LTM EBITDA was $13.8 million, and FY 2021 EBITDA was $8.4 million.

Earnings Per Share

Liquidity
Orion maintains ample liquidity. Total liabilities have decreased from $41.5 million in March 2020 to $34.7 million in March 2021 to $25.8 million in Q3 (as reported February 09, 2022). And total debt has decreased during this time period from $13.6 million to $2.8 million.

Profitability
Orion maintains excellent margins relative to industry peers such as ULBI, WATT, SUNW, HTOO, and NILE.

Cash Flow
OESX maintains positive cash flow. Cash from Operations was equal to $9.7 million for Q3 TTM and $1.7 million for 2021. And levered free cash flow was equal to $5.4 million in Q3 TTM.

Valuation
Price to Earnings (P/E GAAP): OESX is currently trading at a P/E of 2.85x.

Enterprise Value to EBITDA (EV/EBITDA): OESX is currently trading at an EV/EBITDA of 4.89x.

Most Recent Earnings – February 09, 2022 (Q3)

GAAP EPS: $0.04 in-line.

Revenue: $30.7M (-30.7% Y/Y) beats by $0.22M.

Business Outlook: Given the current pace of large-customer activity, Orion anticipates FY 2022 revenue of approximately $130M vs consensus of $134.47M, representing growth of 11% over revenue of $116.8M in FY 2021. Long-term, Orion’s Board and management team are committed to and confident in achieving the Company’s strategic plan which seeks to grow the business to $500M annual revenue over approximately five years. Orion’s strategic plan envisions organic growth averaging at least 10% per year, augmented by external growth, including strategic acquisitions, business partnerships and other initiatives.

Earnings Expectations

Orion is expected to earn $0.25 per share for FY 2022E. This is down materially from 2021, due in part to the reduced growth associated with the COVID-19 rebound from the year prior. Investors should be focused on 2023E and 2024E earnings, as this is a long-term hold.

Smart Acquisitions

OESX is focused on growing its lighting maintenance service business. This is an area that provides both an attractive opportunity for growth as well as the potential to build a solid base of recurring revenue.

To date, the company’s customer base primarily consisted of a major international retail customer and a national specialty retail customer.

To accelerate our growth, in early January 2022, OESX acquired Stay-Lite Lighting, a provider of lighting, electrical and maintenance services, primarily for retail companies as well as for industrial and commercial facilities. Stay-Lite Lighting provides Orion with a nationwide maintenance service network, an experienced in-house team of people and equipment that enables us to self-perform services in 15 states, primarily in the Midwest and Mid-Atlantic regions. Stay-Lite Lighting brings to Orion an annual revenue base of approximately $9 million, primarily providing services to national retail companies.

Several of Stay-Lite’s customers are companies that are not currently customers of Orion, including their 2 largest national retail customers. Based on the expanded scope of our combined businesses, management believes Orion has the potential for over $20 million of maintenance services revenue in fiscal year 2023, which begins April 1.

Why I Believe in Orion

I believe that Orion is more than capable of hitting its $500 million revenue goal inside five years.

And along the way, I think you can make 4X to 5X your money on this stock. This is a long-term three to five year hold.

Strengths: Orion’s product and service portfolio, its growing base of customers, and unique build, design, install, maintenance capabilities. The company continues to build a growing pipeline of potential partners, supported by its financial strength to execute on opportunities that fit within its growth plans and financial metrics.

Disclosure
I am/we are long STOCK OESX either through stock ownership, options, or other derivatives. 

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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Additional disclosure
Every investor’s situation is different. Positions can change at any time without warning. Please do your own due diligence and consult with your financial advisor, if you have one, before making any investment decisions. The author is not acting in an investment adviser capacity. The author’s opinions expressed herein address only select aspects of potential investment in securities of the companies mentioned and cannot be a substitute for comprehensive investment analysis. The author recommends that potential and existing investors conduct thorough investment research of their own, including a detailed review of the companies’ SEC filings. Any opinions or estimates constitute the author’s best judgment as of the date of publication and are subject to change without notice.