Tennant Shares Drop Amid Mixed Q3 Earnings Report

Tennant's shares fell 5% following a Q3 earnings report that slightly missed expectations. Investors remain optimistic due to growth in autonomous mobile robots and recurring revenue streams.

Date: 02-11-2024

AI Rating: 5

Tennant (NYSE: TNC) experienced a 5% drop in share price after announcing its third-quarter earnings, which slightly missed analysts’ expectations for both revenue and earnings. This immediate decline indicates a cautious market response to the results.

Despite the stock price decrease, there are several positive indicators for investors. The company reported a sales growth of 3% and adjusted earnings-per-share (EPS) growth of 4% during the quarter. While these figures may seem modest, they do reflect some level of stability.

Significantly, Tennant's growing focus on autonomous mobile robots (AMR) is seen as a forward-looking strategy. The company launched the X4 ROVR AMR earlier this year and sold over 2,200 units within the first three quarters. This transition is noteworthy as AMRs accounted for 5% of Tennant's total sales for the first nine months of 2024, representing a shift in product offerings to more tech-driven solutions.

Moreover, these autonomous units contribute to annual recurring revenue through software subscriptions, in addition to quasi-recurring sales which make up 36% of the company's revenue. This diversifying revenue model could enhance profitability and investor confidence in the long term.

Furthermore, a reverse discounted cash flow analysis suggests that Tennant only needs to achieve a 3% growth rate in sales perpetually to justify its current share price. Such a low hurdle could imply an attractive valuation for potential investors.

In conclusion, while the immediate factors impacting Tennant stock appear negative due to the earnings miss and subsequent price drop, the long-term growth prospects tied to AMR sales and recurring revenue may present a positive outlook for investors.

Stocks: TNC