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SolarEdge shares outlook remains cautious, Truist analyst updates estimates amid inventory concerns

EditorAhmed Abdulazez Abdulkadir
Published 09/12/2024, 05:37 AM
© Pavlo Gonchar / SOPA Images/Sipa via Reuters Connect
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On Thursday, Truist Securities maintained a Hold rating on SolarEdge Technologies (NASDAQ:SEDG) with a consistent price target of $20.00. The firm's stance comes as a result of anticipated continued under-shipments into the European market, which are expected to persist into early next year.


The analyst from Truist Securities pointed out that weak market conditions in the Netherlands, along with a decrease in year-over-year volumes from Germany after a strong 2023, are likely to keep revenue and gross margins close to their third-quarter forecasts through at least the first quarter of 2025.


Despite these challenges in Europe, SolarEdge is predicted to perform relatively better in the U.S. market due to its significant market share in the third-party ownership (TPO) sector. However, the uncertainty surrounding European inventory levels is a factor contributing to the decision to maintain a neutral stance on the stock. In light of these considerations, Truist Securities has adjusted their estimates, reaffirming their $20 price target and Hold rating for SolarEdge.


The revised financial projections for SolarEdge indicate a reduction in fiscal year 2024 estimated revenues to $1.02 billion, down from the previous $1.12 billion, and below the consensus of $1.09 billion. Furthermore, the forecast for fiscal year 2025 revenue has been lowered to $1.67 billion from the earlier $2.04 billion estimate, which is also beneath the market consensus of $1.90 billion. These adjustments reflect a more conservative outlook on growth in the second half and the anticipated shipment and demand trends.


The price target of $20 is derived from applying an 8 times multiple to the firm's fiscal year 2026 estimated EBITDA of $167 million, which has been adjusted down from the prior estimate of $344 million and is less than the consensus estimate of $217 million. This multiple is slightly lower than the average market multiple of 9.5 times. Truist Securities' reiteration of the Hold rating indicates a cautious perspective on the stock, given the current market dynamics and future expectations for SolarEdge.


In other recent news, SolarEdge Technologies has experienced significant changes in its management structure. The company's CEO, Zvi Lando, has stepped down, with the company's former CFO, Ronen Faier, stepping in as interim CEO. Ariel Porat, previously Senior VP of Finance, has assumed the CFO role. This transition is part of recent developments at SolarEdge.


Morgan Stanley has maintained its Equalweight rating and $28.00 price target for the company, while Jefferies initiated coverage with a Hold rating and a $27.00 price target. Canaccord Genuity and BMO Capital also maintained their ratings, with price targets of $27.00 and $24.00 respectively. Notably, Deutsche Bank reduced its price target from $40 to $25.


SolarEdge reported second-quarter revenues of approximately $265 million, with the solar segment contributing $241 million. Despite a negative GAAP gross margin of 4.1%, the company has plans for new product launches, including a silicon carbide-based inverter and a U.S.-made DC-coupled LFP-based battery, set to begin domestic shipping in the first quarter of 2025.


The company has set a revenue target of $550 million for the second quarter of 2025, with expectations to become cash flow positive in the first half of the same year.

InvestingPro Insights


As Truist Securities maintains a Hold rating on SolarEdge Technologies (NASDAQ:SEDG), it's crucial to consider a variety of financial metrics and expert insights. According to InvestingPro data, SolarEdge's market capitalization stands at approximately $1.1 billion, reflecting the size and scale of the company within the industry. Notably, the company is trading at a low Price / Book multiple of 0.52, which could indicate that the stock is undervalued relative to its book value, aligning with one of the InvestingPro Tips that highlights this metric as a potential investment consideration.


However, investors should be aware of the company's negative P/E ratio, currently at -2.11, suggesting that the company is not profitable at this time. This is further emphasized by a significant revenue decline over the last twelve months, with a decrease of 58.74%, and the analyst consensus that anticipates a sales decline in the current year. Moreover, SolarEdge's gross profit margin stands at 7.82%, which reinforces the concern raised by another InvestingPro Tip about the company's weak gross profit margins.


For those considering an investment in SolarEdge, it's worth noting that the company has been aggressively buying back shares, which can be a positive signal about management's confidence in the company's future. Additionally, SolarEdge has more liquid assets than short-term obligations, suggesting a degree of financial stability in the near term. For a deeper dive into the company's financial health and future projections, there are 15 additional InvestingPro Tips available, which can be accessed for SolarEdge at https://www.investing.com/pro/SEDG.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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