Solar companies are facing demand challenges, leading to a decline in share prices across the industry. Executives at SolarEdge Technologies Inc. (SEDG) recently cautioned about market trends, delivering a forecast that fell well below expectations. This follows similar indications from SunPower Corp. (SPWR) and Enphase Energy Inc. (ENPH).
The CEO of SolarEdge, Zvi Lando, attributed the decrease in demand to a combination of higher interest rates and the new net metering 3.0 regime in California. As a result, inventories of SolarEdge's products have increased compared to normal levels due to anticipation of market growth that has not materialized.
During the second quarter, SolarEdge witnessed a 29% decline in shipments to U.S. residential markets. However, sell-through by distributors increased by more than 10%. Lando expects the process of inventory normalization to continue until the end of the year.
In Europe, the trends are mixed. Megawatt shipments showed a sequential increase of 52%, but distributors are also grappling with elevated inventories. Lando noted that distributors are adopting a more cautious approach to better manage their cash flow. They are reducing inventory levels and minimizing the number of suppliers in their portfolio.
As a result of these challenges, shares of SolarEdge, Enphase, and SunPower have tumbled. SolarEdge's shares were down 18% at midday trading, marking their largest single-day percentage decline in about a year. Enphase's stock was down 6% while SunPower's was down 9.6%. First Solar Inc.'s (FSLR) stock also experienced a 5.2% decline.
In summary, solar companies are battling demand challenges, resulting in a significant decline in share prices. The CEO of SolarEdge highlighted the impact of higher interest rates and regulatory changes in California on market trends. While distributors continue to navigate through elevated inventories, the industry's outlook remains uncertain.
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The Impact of U.S. Weakness and Problems in Europe
Joseph Osha, an analyst from Guggenheim, recently admitted that he underestimated the impact of U.S. weakness on SolarEdge's business. Additionally, there have been more problems in Europe than expected. However, Osha still believes that SolarEdge is the best way to participate in the distributed solar growth market. He expects the company to achieve revenue growth of over 20% this year and low-teens rate growth next year, despite facing headwinds. Osha rates the stock a buy but has revised his price target to $290 from $400.
Consistently Profitable and Strong Balance Sheet
Mark Strouse, an analyst from JPMorgan, remains positive about SolarEdge's future prospects. He highlights that SolarEdge is one of the few solar stocks that consistently generates profits and cash while maintaining a strong balance sheet. Strouse believes that further penetration of the global solar market and expansion into new verticals will drive the stock's outperformance compared to other solar companies. Although he acknowledges that shares may be range-bound until visibility improves, Strouse lowers his price target to $335 from $359 while reiterating an overweight rating.
Rebounding Faster than Peers
Ameet Thakkar, an analyst from BMO Capital Markets, expected SolarEdge's mix of sales in Europe and the commercial and industrial sectors to provide some cushion. However, the company's third-quarter revenue forecast of $880 million to $920 million fell short of Thakkar's estimate by 17%. Despite this, he maintains an Outperform rating on SolarEdge. Thakkar believes that SolarEdge will rebound faster than other rooftop leveraged peers. He has revised his price target to $285 from $368.
In conclusion, experts recognize the challenges faced by SolarEdge due to U.S. weakness and problems in Europe. However, they maintain a positive outlook on the company's ability to achieve revenue growth and profitability. With a solid balance sheet and potential expansion into new verticals, SolarEdge remains a promising investment opportunity.
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