Enphase stock drops 25% to lowest in nearly a year as company's weak guidance spooks Wall Street

By Claudia Assis

Enphase stock worst performer in S&P, Nasdaq; 'too expensive to wait on recovery'

Enphase Energy Inc. stock on Wednesday dropped to its lowest in nearly a year as investors worried that demand headwinds are here to stay.

Enphase (ENPH) shares were the worst performer in the S&P 500 index and the Nasdaq 100 . It was poised to close at its lowest since May 24, when it closed at $162.51, and on pace for largest one-day percent drop June 2020.

The company late Tuesday reported first-quarter earnings that beat Wall Street expectations but called for lower-than-expected revenue in the current quarter, and shares traded more than 16% lower in the aftermarket.

Enphase guided for second-quarter 2023 revenue in a range between $700 million and $750 million, compared with FactSet consensus of $762 million.

The second-quarter guidance is "the greatest concern," BofA Securities analyst Julien Dumoulin-Smith said in a note Wednesday. Dumoulin-Smith downgraded his rating on Enphase stock to the equivalent of sell, saying that for investors it will be "too expensive to wait on recovery."

Some may argue that the worst has passed, Dumoulin-Smith said. "In our view, it has not; headwinds to near term growth are bolstered by weak sell through trends in the distributor channel and inflexible cash advance terms to installers, which leave ongoing challenges throughout 2023."

And that's on top of "interest rate driven challenges" for U.S. solar-power installations that Enphase cannot avoid, the analyst said. "Weak guide spooks the Street, and may be just the start," the analyst said.

Enphase's key products include solar-power microinverters, stationary batteries, EV chargers.

On the call with analysts following results, Enphase said that it did not plan on drop its prices. Philip Shen with Roth wrote in his note that it may have to.

The U.S. residential market for solar "continues to get worse and this eventually could impact the company's volumes," Shen said. "At this point, management may have to lower price." There's also rising interest rates to contend with, which may take some time to normalize.

Goldman Sachs analyst Brian Lee kept his buy rating on Enphase, acknowledging that disappointing second-quarter guidance and that the company "has struck amore cautious tone on growth."

"While a near-term reset on topline growth will be disappointing for investors, we believe (Enphase's) long-term growth fundamentals remain intact driven by its growing exposure to robust demand in Europe, the rollout of storage across more markets," and as installers adapt to new net-metering rules in California and higher interest rates.

"In addition, we would expect investors to more confidently underwrite (Inflation Reduction Act) manufacturing credits following ENPH's estimation of the netbenefit of the credits and the specific timing of its U.S. ramp," Lee said.

Shares of Enphase have outperformed the broader index in the last year, up 8.5% versus a decline of about 2% for the S&P. In the year to date, however, Enphase stock is down 37%, contrasting with gains of about 6% for the index.

-Claudia Assis

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04-26-23 1345ET

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