SolarEdge’s Rating Slashed at Barclays

On Monday, May 13, 2024, Biju Perincheril of Susquehanna adjusted the price target for SolarEdge Technologies (NASDAQ:SEDG) to $56, suggesting a potential increase of about 13.2% from its current price of $49.47. This new target comes with a downgrade in rating to Neutral from Positive. SolarEdge Technologies, a key player in the solar energy sector, specializes in the development of inverter solutions for solar photovoltaic (PV) systems. The company's recent performance and market position are crucial for investors, especially in the context of the broader solar industry's dynamics.

The solar sector, where SolarEdge operates alongside competitors like Enphase Energy (ENPH), First Solar (FSLR), and Canadian Solar (CSIQ), is experiencing growth, particularly in the residential segment. However, SolarEdge's recent financial outcomes have raised concerns. The company reported a significant first-quarter loss in 2024, with an adjusted loss per share of $1.90, surpassing the Zacks Consensus Estimate of a $1.58 loss. This marks a considerable downturn from the previous year's earnings of $2.90 per share. On a GAAP basis, the loss was even steeper at $2.75 per share, compared to GAAP earnings of $2.35 per share in the same period last year.

Revenue figures further underscore the challenges SolarEdge is facing. The company's revenues plummeted by 78% year-over-year to $204.4 million, albeit slightly beating the Zacks Consensus Estimate by 4.9%. This decline is primarily due to a significant drop in revenues from its solar segment, which fell by 79% to $190.1 million from $908.5 million in the prior-year period. Such financial results reflect the ongoing struggles within the solar industry and have led to a reassessment of SolarEdge's outlook by analysts and investors alike.

The stock performance of SolarEdge also mirrors these financial challenges. The company's shares experienced a decrease, closing at $49.47, which is a decline of approximately 6.08%. This trading session saw the stock fluctuating between a low of $49.12 and a high of $53.67. Over the past year, SEDG's shares have seen a high of $313.55 and a low of $49.12, with a market capitalization of approximately $2.83 billion. This volatility in stock price, coupled with the recent downgrade by Susquehanna, suggests a cautious outlook for SolarEdge within the competitive landscape of the solar energy sector.

SolarEdge Technologies (NASDAQ:SEDG) experienced a significant 17% drop in its share price during premarket trading Wednesday. This decline came in the wake of the company's fiscal Q4 results and FQ1 2024 guidance, both of which fell short of analyst expectations. Despite a narrower-than-expected loss of $0.92 per share, its $316.04 million revenue for the quarter missed the $324.2 million forecast.

The company also reported a drastic decrease in non-GAAP gross margin, plummeting from the previous year's 30.2% to 3.3%. Looking ahead, SolarEdge anticipates revenue in the range of $175 million to $215 million for the next quarter, significantly below the $373.44 million forecast, with its solar segment expected to contribute between $160 million and $200 million.

SolarEdge Technologies (NASDAQ:SEDG) revealed on Sunday plans to cut its workforce by approximately 16%, affecting around 900 global employees, as part of its cost reduction efforts. Following this announcement, the company's shares increased by 6% intra-day today.

This workforce reduction is in line with several other cost-cutting measures SolarEdge has recently undertaken. These include shutting down manufacturing operations in Mexico, scaling back production capacity in China, and discontinuing its light commercial vehicle e-mobility division.

In November, the company had to revise its revenue forecast for the fourth quarter of 2023 downwards, attributing this to lower demand for its solar inverters. SolarEdge had initially expected Q4/23 revenue to be around $325 million, a significant decrease of 55% from Q3 and a 64% drop from the same period the previous year. However, analysts are now projecting Q4 revenue to be about $371 million, with the company likely to report a loss of $1 per share.

SolarEdge Technologies (NASDAQ:SEDG) revealed on Sunday plans to cut its workforce by approximately 16%, affecting around 900 global employees, as part of its cost reduction efforts. Following this announcement, the company's shares increased by 6% intra-day today.

This workforce reduction is in line with several other cost-cutting measures SolarEdge has recently undertaken. These include shutting down manufacturing operations in Mexico, scaling back production capacity in China, and discontinuing its light commercial vehicle e-mobility division.

In November, the company had to revise its revenue forecast for the fourth quarter of 2023 downwards, attributing this to lower demand for its solar inverters. SolarEdge had initially expected Q4/23 revenue to be around $325 million, a significant decrease of 55% from Q3 and a 64% drop from the same period the previous year. However, analysts are now projecting Q4 revenue to be about $371 million, with the company likely to report a loss of $1 per share.

Barclays analysts adjusted their rating for SolarEdge Technologies (NASDAQ:SEDG), downgrading it from Equalweight to Underweight, and reduced the price target from $74.00 to $50.00.

The analysts' comments are based on a comparative analysis with Enphase Energy (ENPH), indicating that SolarEdge is currently trading at a higher valuation than Enphase. After revising their figures, the analysts observe that SolarEdge is trading at a three-turn premium compared to Enphase based on the estimated 2025 earnings per share (EPS), and approximately two turns higher on the 2025 estimated enterprise value to EBITDA (EV/EBITDA) ratio.

Considering the anticipated stronger recovery for Enphase, along with its higher gross margins, the analysts argued that the valuation dynamics should be reversed, with Enphase meriting a higher trading premium than SolarEdge.

Wells Fargo analysts downgraded SolarEdge Technologies (NASDAQ:SEDG) to Equal Weight from Overweight and slashed the price target to $82.00 from $190.00.

The analysts cited three key concerns prompting the shift to a neutral stance: Firstly, SolarEdge's quarterly demand guidance of $600-$700 million, based on Q3 averages, might be overly optimistic given that September's actual sales, the latest month for which data was available, were lower. This suggests a potential downside if demand remains at September's level.

Secondly, the unexpected drop in month-over-month sales in Europe during September, typically a growth period, raises doubts about the robustness of underlying European demand. Thirdly, SolarEdge's substantial fixed costs could enduringly affect gross margins if demand fails to bounce back.