SolarEdge Earnings: Lowering Valuation Following Large Miss on Expectations

Key Morningstar Metrics for SolarEdge Technologies

• Fair Value Estimate: $147.00
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: Very High

What We Thought of SolarEdge Technologies’ Earnings

We’ve 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.

With shares down 60% in the year to date, we increasingly felt bad news was already priced into SolarEdge stock, leaving it undervalued. We were wrong. The company lowered its revenue expectation for the third quarter by 20% from its guidance three months ago. Additionally, gross margins are expected to be 20%-21% versus the previous expectation of 28%-31%.

SolarEdge blamed the guidance change on continued elevated inventory at distributors in Europe, which is its main market, along with slower-than-expected installation rates. The company expects significantly lower revenue in the fourth quarter as the inventory destocking at European distributors continues. We await the company’s official earnings release on Nov. 1 for further context on the weakness and its path to recovery in revenue and margins.

Our revised fair value estimate incorporates a 15% reduction in our 2025 revenue following lower megawatts shipped and lower average selling prices. In addition, we lower gross margins by roughly 3 percentage points to approximately 27%. We now expect lower long-term margins than the company has generated historically, as a result of a more European and commercial-heavy business mix.

SolarEdge has historically sought to grow revenue in excess of 20% annually, with gross margins in the range of 30%-32%. Our revised fair value estimate assumes long-term revenue growth of roughly 10% annually and gross margins in the 26%-27% range. The stock is going for less than $100 per share in after-hours trading, underscoring the low long-term revenue growth and gross margins that investors are underwriting.