Array Technologies: Navigating Short-Term Margin Pressures Amid Long-Term Renewable Energy Growth

The recent price target cut for Array Technologies (ARRY) by Jefferies from $13 to $10 has sparked debate among investors. While the adjustment reflects short-term margin pressures linked to the APA Solar acquisition, the underlying fundamentals of the renewable energy sector and Array's strategic positioning suggest a compelling long-term investment case. This analysis explores how sector dynamics, Array's operational resilience, and its alignment with global decarbonization goals could drive value creation despite near-term challenges.

Sector Dynamics: Solar Dominance and Structural Growth

The renewable energy sector in 2025 is characterized by rapid expansion and evolving challenges. Solar energy is projected to account for nearly half of global electricity demand growth, driven by declining costs and technological advancements in tracking systems and energy storage 2025 Renewable Energy Industry Outlook | Deloitte Insights^[1]. Offshore wind and grid-scale storage are also gaining traction, particularly in Europe and the U.S., where policy frameworks like the Inflation Reduction Act (IRA) are incentivizing domestic clean energy production Renewable Energy Trends and Forecasting in 2025^[2].

However, the sector faces headwinds. Policy uncertainty under the new Trump administration could slow climate initiatives, while permitting delays and trade tariffs threaten project timelines and margins 5 trends shaping the energy world in 2025 - The World Economic Forum^[3]. For Array, which relies heavily on U.S. and European markets, these risks are material. Yet, the company's focus on domestic content and automation—such as its new New Mexico manufacturing facility—positions it to mitigate supply chain bottlenecks and benefit from IRA tax credits Array Technologies Q1 2025 slides: Revenue surges 97%^[4].

Array's Strategic Positioning: Innovation and Margin Resilience

Array Technologies has demonstrated robust growth in 2025, with Q1 revenue surging 97% year-over-year to $2.0 billion and Q2 revenue rising 42% to $362.2 million Array Technologies Reports Strong Q2 2025 Revenue Growth Amid Challenges in Solar Market^[5]. This performance underscores strong demand for its solar tracking systems, which are critical for optimizing energy output in utility-scale projects. The APA Solar acquisition, though a near-term drag on margins, is expected to enhance Array's product portfolio and geographic reach. Jefferies estimates that APA will contribute partially to Q3 2025 and fully to Q4, with long-term gross margins stabilizing at ~28.7% Jefferies Lowers Its PT on Array Technologies, Inc. (ARRY) to $10^[6].

The company's innovation pipeline further strengthens its competitive edge. Launches like SkyLink (a digital monitoring platform) and 2000V capabilities (which reduce transmission losses) highlight Array's commitment to cost efficiency and performance What Are Array Technologies' Growth Strategy and Future ...^[7]. Additionally, strategic investments in robotics and automation are expected to offset labor and material cost pressures, preserving operating margins despite rising input costs Array Technologies price target lowered to $10 from $13 at Jefferies^[8].

Financials and Risk Mitigation

While Array's Q2 gross margin dipped to 26.1% from 34.5% in the prior year—due to inventory charges and input costs—the company maintained operating income growth of 17% to $46.4 million . This resilience reflects disciplined cost management and pricing power in a competitive market. Array's recent $345 million convertible debt issuance to repay a term loan also underscores its proactive approach to managing leverage, ensuring flexibility for future acquisitions or R&D investments .

Jefferies' revised $10 price target assumes fiscal 2025 revenue of $1.25 billion and free cash flow exceeding $100 million annually by 2027 . These projections hinge on successful APA integration and the company's ability to navigate short-term margin compression. Management's confidence in preserving margins, even amid tariffs, suggests a strong alignment with long-term value creation.

Investment Outlook: Balancing Risks and Rewards

The price target cut by Jefferies should not deter investors with a multi-year horizon. Array's growth drivers—expanding solar demand, IRA-driven domestic content incentives, and a $2.0 billion order book—provide a solid foundation for sustained revenue growth. While near-term margin pressures are real, the company's focus on automation, product diversification, and strategic debt management positions it to outperform peers in a maturing market.