Solar power stocks fell hard in early trading on Friday following a warning from solar-equipment maker
SolarEdge Technologies
that demand in Europe has slumped significantly.
SolarEdge (ticker: SEDG) stock was down 26% Friday, after falling more than 30% earlier in the day — its steepest drop in history. Competitor
Enphase Energy
(ENPH) was down 12%.
Sunrun
(RUN) and
SunPower
(SPWR), which are solar developers, were down 3.3% and 8.9% respectively. The
Invesco Solar
exchange-traded fund (TAN) was down 6%, its worst performance in more than a year.
“During the second part of the third quarter of 2023, we experienced substantial unexpected cancellations and pushouts of existing backlog from our European distributors,” SolarEdge CEO Zvi Lando said in a statement released late on Thursday. The company will report its full third-quarter earnings on Nov. 1, but its problems are clearly significant enough that it felt the need to warn shareholders.
SolarEdge makes a piece of equipment called an inverter that turns direct current from a solar panel into alternating current that can be used in a home. SolarEdge cut its guidance for third-quarter revenue to a range of $720 million to $730 million, down from a previous forecast of $880 million to $920 million. Wall Street had been expecting $909 million. Its operating income is now expected to be in a range of $12 million to $31 million, compared with management’s prior estimate of $115 million to $135 million.
At its root, the problem is that homeowners aren’t installing enough solar panels on their roofs, causing the inventory of panels and equipment to pile up. SolarEdge said that solar installations typically pick up in late summer and September in Europe, but that hasn’t happened this year.
Chinese manufacturers have also flooded the European market with inexpensive solar modules and equipment, creating problems for distributors who don’t have enough customers interested in buying them. “Europe sounds really ugly,” wrote Pickering Energy Partners analyst Kevin Pollard. It isn’t the only area of the world that’s seen a solar slowdown. U.S. residential installers had already been struggling with a lack of demand, as high interest rates made the cost of installing panels go up.
SolarEdge warned that the sales slowdown would last into the fourth quarter as “the inventory destocking process continues.” Some analysts fear that problems could linger well into 2024. Pollard lowered his 2024 revenue estimate by 28%. Morningstar analyst Brett Castelli expects SolarEdge’s long-term growth rate to be impacted too. He now sees revenue growth at 10% a year and gross margins at 26%-27%, a major drop considering “SolarEdge has historically sought to boost revenue in excess of 20% annually with gross margins in the range of 30%-32%.”
“With shares trading below $100 per share in after-hours trading, this underscores to us the low level of long-term revenue growth and gross margins investors are underwriting,” Castelli wrote.
A cut in growth rates is taking a toll on analyst price targets. Analysts at
Citi
lead by Vikram Bagri slashed their target for SolarEdge stock to $187 from $248 after the warning. Citi said the bear case for the stock is about $60.
SIG analysts led by Biju Perincheril lowered their target to $186 from $200. TD Cowen also gave their target a cut, to $140 from $176.
This problem isn’t new, but it does appear to be getting significantly worse. Rooftop solar stocks have struggled in recent months. U.S. demand has waned because of high interest rates and less-generous solar policies in California. SolarEdge sells in both the U.S. and Europe. Enphase had been mostly selling into the U.S., but had recently ramped up sales in Europe.
Write to Avi Salzman at avi.salzman@barrons.com and Brian Swint at brian.swint@barrons.com
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