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2 Beaten-Down Solar Stocks Due for a Rebound

Barchart - Wed Dec 6, 2023

At the COP28 UN climate summit in Dubai, more than 100 countries have now signed onto a G20-led initiative pledging to triple global installed renewable energy capacity by the end of the decade. Among alternative energy sources, solar remains a top choice, representing about 32% of total global renewable energy output.

And the growth prospects for solar appear bright. According to this report, the global solar power market is projected to clock an impressive CAGR of 14.9% between 2023 and 2032, reaching roughly $678.81 billion over the next decade.

However, solar stocks have underperformed as a group in 2023, pressured by higher interest rates and soaring inflation. The Invesco Solar ETF (TAN), with $1.3 billion in AUM, is off 34% on a year-to-date basis - and with just weeks to go in the year, our two focus solar stocks in this article are currently the worst-performing S&P 500 Index ($SPX) components of 2023.

But amid expectations that interest rates have peaked, these two beaten-down alternative energy names could be due for a turnaround year in 2024.

SolarEdge Technologies

Established in 2006, SolarEdge Technologies (SEDG) is a global leader in smart energy solutions for solar installations. Their core technology is the DC optimizer, which improves efficiency and performance at the module level. 

They also provide a range of products and services for residential and commercial solar applications, including inverters, storage solutions, monitoring software, and power optimizers. SolarEdge is a dominant player in the U.S. residential solar PV market, which is expected to grow at a CAGR of 14.4% through 2030. 

Currently commanding a market cap of $4.65 billion, SolarEdge stock is down 70% in 2023 so far.

Following the sharp downturn, SolarEdge stock is somewhat reasonably valued. The forward price/sales ratio is 1.55, which compares favorably to many of its industry peers.

SolarEdge reported a mixed third quarter, as EPS fell short of Wall Street's forecast, while revenues managed to surpass the consensus. Specifically, Q3 revenues fell 27% from the previous year to $725.3 million, edging past the average analyst forecast despite stubbornly high inventory levels, especially in Europe.

However, the company unexpectedly swung to a quarterly loss, defying expectations for a profitable quarter. SolarEdge had reported an EPS of $0.91 in the prior year.

Overall, analysts have deemed the stock a “Moderate Buy” with a mean target price of $103.28. This represents an upside potential of about 24% from current levels. Out of 27 analysts covering the stock, eight have a “Strong Buy” rating, one has a “Moderate Buy” rating, 17 have a “Hold” rating, and one has a “Moderate Sell” rating.

Enphase Energy

Enphase Energy (ENPH) is a global energy technology company that designs, develops, manufactures, and sells microinverters, battery storage systems, and software solutions for residential solar photovoltaic (PV) systems. Touted as one of the world's leading suppliers of microinverters, Enphase's market cap currently stands at $15.02 billion.

The microinverters market is expected to expand at a CAGR of 19.7% through 2028. Although microinverters cost more to the consumer, increased adoption is driven by module-level monitoring, easier installation, enhanced design flexibility, removing the need for DC switching points, and better safety than conventional inverters.

Enphase stock is down 58% on a YTD basis to lag the broader solar group.

Enphase's results for Q3 2023 included a beat on EPS, even as the top-line results fell short of estimates. Revenues declined by 13.2% from the previous year to $551.1 million, as a slowdown in the European market pressured results. EPS fell 18.4% to $1.02, edging past the consensus estimate of $1.01.

When it comes to its balance sheet, Enphase ended the quarter with a cash position of $1.78 billion and $1.2 billion in debt.

During the quarter, Enphase Energy initiated manufacturing at its Salcomp facility in Arlington, Texas. This, along with contributions from its three U.S. contract manufacturers, resulted in a total shipment of 531,000 microinverters. Management anticipates this figure will roughly double in Q4 as domestic production capacity ramps up. Moreover, the company's strategic decision to begin battery manufacturing in the U.S. by mid-2024 will further unlock IRA incentives and contribute to sustained profitability.

Overall, analysts have a rating of “Moderate Buy” for the stock, with a mean target price of $114.31 - indicating an upside potential of about 5% from current levels. Out of 30 analysts covering ENPH, 14 have a “Strong Buy” rating, three have a “Moderate Buy” rating, 12 have a “Hold” rating, and one has a “Moderate Sell” rating.

On the date of publication, Pathikrit Bose did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.