Citing "undeniable fundamentals" and a sector ripe for disruption, Evercore ISI is launching coverage on the energy storage ecosystem, set to solve the problems of intermittent power generation as the energy industry pivots to renewables.
"The outlook for energy storage demand growth these next three decades is strong as the globe pivots towards decarbonization amid continued cost declines in battery prices," the firm says, taking a deep dive into the pros and cons of "many forms and flavors" of storage.
Storage is a critical enabler of energy transition, it says, thanks to novel technologies combined with "significant" policy tailwinds.
Energy storage is the next "mega theme" of transition, joining electric vehicle charging, carbon capture, and hydrogen, it adds.
Today, storage technologies collect energy from the grid or a nearby power plant and release it to the grid when energy is later needed. "While simple in theory, the complex regulations and compensation frameworks battery storage providers currently contend with prohibits technologies from being fully utilized across the wide gamut of applications" for which it could be deployed, Evercore says.
The total addressable market is large, and likely requires a trillion dollars of spending between now and 2050, the firm says, with rapid growth ahead for both hardware and software energy storage providers.
It should still be dominated going forward by "utility-scale/grid-scale" storage efforts powered by electrochemical technologies, particularly the dominant lithium-ion battery standard, it says. But the sector is set up for disruption from a number of niche solutions - from chemical means (hydrogen production, fuel cells) to electrical (supercapacitors or superconducting magnetic energy storage) to thermal energy storage to more mechanical means (pumped storage hydro, compressed air, flywheels and even gravity-based energy storage).
It's chosen two companies to benefit from the mega theme, and initiated both at Outperform: One is a "macro" bet on energy storage as a trend/concept, while the other is more of a "niche" investment coupled with a rapidly growing backlog.
The macro play is Fluence Energy (NASDAQ:FLNC), which it calls a "must-own" in the space. The company provided the grid's first ever Li-Ion battery energy storage system, and has worked through several generations of that technology since.
It's backed by industrial and utility market leadership via Siemens and AES (both of which formally established Fluence as a joint venture) and has grown quickly to become one of the top storage providers. And it faces some competitive threats and supply-chain risk, but Evercore says the best way to value it is by a focus on the fundamentals.
Working on a multiple of its 2024 revenue revenue of $2.8 billion, Evercore has set Fluence's price target at $47, implying 29% upside from yesterday's close.
As for the niche play, a "higher risk, higher reward" approach settles on Eos Energy Enterprises (NASDAQ:EOSE).
"This is a revenue growth story through the medium-term as the company focuses on commercialization while a ramp in manufacturing capacity should provide meaningful revenue realization from 2023-2025," the firm says.
The stock is the genesis of a recent de-SPAC - and it's been penalized by project and execution delays as well as the general cooling environment on special-purpose acquisition companies as a mechanism, but that provides a favorable risk-reward skew, Evercore says. And Eos' long-duration storage tech is competitively advantaged, "given its performance profile and lower exposure to lithium-ion supply chain risks."
Also working from a multiple of its 2024 revenue estimate of $539 million, it's set a Street-high price target of $21, implying 115% upside from yesterday's close.