Company Reports

We lower our fair value estimate for no-moat SolarEdge to $71 from $75 following the company’s fourth-quarter results. Our reduced valuation is driven by reduced revenue estimates over the medium term. We view shares as fairly valued.

SolarEdge is one of the largest global solar inverter manufacturers, based on revenue. The inverter is often referred to as the brains of a solar system, with its purpose being to convert direct current produced by solar panels into alternating current used by households/grid and optimize energy production.

Clean energy stocks have had a roller-coaster 18 months. Optimism following the passage of the Inflation Reduction Act in August 2022 gave way to rising interest rates in 2023. We highlight three key themes for investors to focus on in 2024: interest rates, U.S. policy, and profitability.

We lower our fair value estimate for SolarEdge to $75 from $147 following the company’s third quarter results and updated outlook. Our reduced valuation is driven by lower long-term revenue and gross margin expectations, coupled with reduced operating leverage. Our no-moat and Very High Uncertainty ratings are unchanged. We view shares as fairly valued.

SolarEdge is the largest global solar inverter manufacturer, based on revenue. The inverter is often referred to as the brains of a solar system, with its purpose being to convert direct current produced by solar panels into alternating current used by households/grid and optimize energy production.

We lowered our fair value estimate for SolarEdge to $147 from $216 after the company announced weak third-quarter results. The driver of our lower valuation is lower long-term revenue and margin expectations. Our no-moat and Very High Uncertainty ratings are unchanged.

SolarEdge is the largest global solar inverter manufacturer, based on revenue. The inverter is often referred to as the brains of a solar system, with its purpose being to convert direct current produced by solar panels into alternating current used by households/grid and optimize energy production.

This week we attended the RE+ conference and trade show in Las Vegas. The conference and exhibit hall provided an opportunity to meet with companies as well as see latest product unveilings. We highlight our key takeaways below.

After updating our modeling assumptions following second-quarter earnings, we lower our fair value estimate for Enphase to $120 per share from $140. Similarly, we reduce our SolarEdge fair value estimate to $216 per share from $238. The primary driver of our lowered valuations is a slight increase to our cost of capital assumption (100 basis points) and modest declines in our margin expectations. We reiterate our no-moat and Very High Uncertainty ratings for both companies. We view shares of SolarEdge as undervalued, while Enphase is fairly valued following the selloff in recent weeks.

SolarEdge is the largest global solar inverter manufacturer, based on revenue. The inverter is often referred to as the brains of a solar system, with its purpose being to convert direct current produced by solar panels into alternating current used by households/grid and optimize energy production.

We lower our fair value estimate for no-moat SolarEdge to $238 per share from $277 following second-quarter results. The reduced valuation is a result of a decrease in our medium-term revenue and gross margin expectations following weaker-than-expected guidance. SolarEdge shares were trading sharply lower (down 18% at the time of writing), but we increasingly view the selloff as an opportunity.

SolarEdge is the largest global solar inverter manufacturer, based on revenue. The inverter is often referred to as the brains of a solar system, with its purpose being to convert direct current produced by solar panels into alternating current used by households/grid and optimize energy production.

We raise our fair value estimate for no-moat SolarEdge to $277 per share from $266 following first-quarter results. The improved valuation is a result of an increase in our long-term gross margin forecast for the company's solar segment. We expect SolarEdge shares to react positively to the results and outlook, but we view shares as fairly valued.

SolarEdge is the largest global solar inverter manufacturer, based on revenue. The inverter is often referred to as the brains of a solar system, with its purpose being to convert direct current produced by solar panels into alternating current used by households/grid and optimize energy production.

The passage of the Inflation Reduction Act was heralded as the largest climate legislation in U.S. history. As a result, the legislation has had an impact on technology adoption expectations and, in some cases, the competitive landscape. While the legislation has already led to a dramatic impact on industry activity, we believe market participants are awaiting additional clarifications from the IRS on certain incentives prior to making further investments. We highlight three specific incentives to watch as the U.S. Department of the Treasury issues clarifications in the months ahead.

Rising adoption of residential batteries represents a secular growth driver for our solar inverter coverage, Enphase and SolarEdge. Batteries accounted for approximately 12% and 1% of revenue for Enphase and SolarEdge in 2021, respectively, but we expect this to rise to 21% and 20% in 2026.

We maintain our $266 fair value estimate for SolarEdge following its fourth-quarter earnings. We view SolarEdge shares as slightly overvalued at current levels.

We are adjusting fair value estimates for some of our rooftop solar coverage after refreshing our long-term industry outlook. The fair value estimate changes range from a reduction of 26% for SunPower to no change for Generac and SolarEdge. We reduce Sunrun's and Enphase's fair value estimates by 16% and 5%, respectively.

On Dec. 15, California regulators finalized new rules that roll back incentives for rooftop solar customers. The final ruling appears largely consistent with the proposed decision last month, and we maintain our fair value estimates for the rooftop solar equities we cover, which we view as largely fairly valued.

In the last 18 months there have been numerous competitive announcements within the rooftop solar inverter space. These range from Generac’s microinverter acquisition in July 2021, to Sunrun funding an upstart provider (Lunar Energy) earlier this year, to Tigo announcing it plans to come public this week. In addition, we flag the expiration of Enphase’s exclusivity with SunPower in first-quarter 2024. Germany’s SMA also plans to launch a new residential solar inverter product for the U.S. market in second half 2023. These announcements highlight the fact that capital is flowing to the highly desirable rooftop solar inverter space, which possesses industry-leading margins.