Array Technologies hit with downgrade on tariffs and weak margins

Bank of America downgraded Array Technologies (ARRY) to Underperform with a $7 price target, citing heightened tariff risks on components from India and Mexico that are projected to significantly erode gross margins beyond management's 2025 guidance. The brokerage now forecasts structural margins closer to 27% through 2027, pressured by these tariffs and less effective steel pass-throughs, suggesting the stock's recent 50% surge is overdone given its premium valuation relative to peers and limited near-term upside.

Analysis

Bank of America has downgraded Array Technologies (ARRY) to Underperform from Neutral, cutting its price objective to $7 from $8 due to significant, mounting risks to profitability. The core of the bearish thesis centers on higher-than-expected import duties on components from India and Mexico, which are projected to create a drag greater than the 100 basis points management has guided for in fiscal 2025. Consequently, Bank of America forecasts ARRY's structural gross margins will settle closer to 27% through 2027, falling short of the company's 28–29% target. This margin pressure is compounded by two additional factors: the sharing of U.S. Inflation Reduction Act incentives with customers and less effective steel price pass-throughs, both of which erode profitability. The downgrade comes after ARRY's stock surged nearly 50% over the past month on optimism for accelerated purchases; however, BofA views these gains as overdone and disconnected from fundamentals, noting the stock now trades at a premium to peers like Nextracker (NXT). The analysts argue that near-term demand pull-forward is more likely constrained by transformer supply, not solar trackers, limiting upside catalysts for Array and tilting the risk-reward profile to the downside.

Key Decisions for Investors

• Investors should critically reassess positions in Array Technologies, as the company's ability to achieve its 28-29% gross margin guidance is now in serious doubt due to tariff and incentive-sharing pressures.
• Given the stock's recent 50% appreciation and premium valuation relative to peers like Nextracker, it may be prudent to consider taking profits or hedging against downside risk.
• Monitor upcoming earnings reports for specific management commentary on the quantifiable impact of tariffs and the effectiveness of steel pass-throughs, as these are the primary drivers of the current bearish outlook.
• Look beyond general solar demand optimism and focus on supply chain constraints, particularly in transformers, which may act as a ceiling on near-term growth for tracker suppliers like Array.