SolarEdge’s [SEDG] share price has started to flicker back to life. Having started January trading at $321.8, the stock closed Friday at $259.48, an 18.7% decline (as of 30 July’s close). Yet, investors seem to be warming up again to the solar investment theme.
SolarEdge’s share price has accelerated 24% since 13 May, while rival Enphase’s share price [ENPH] has seen a 65% gain in the same period. On our thematic screener, the solar investment theme gained 2.8% last week, and is now up over 85% this year.
Helping the cause has been US President Joe Biden’s $2.25bn infrastructure plan focusing on green energy, which includes a 10-year extension on solar tax credits.
With momentum back behind the solar investment theme, will SolarEdge’s share price continue to gain post-second-quarter earnings?
What could move SolarEdge’s share price?
An earnings beat could send SolarEdge’s share price higher. SolarEdge reporting quarterly results on Monday, is expected to post earnings of $1.12 a share, up from $0.97 seen in the same quarter last year. Revenue is forecast at $454.69m.
SolarEdge guided for revenue between $445m and $465m, with Non-GAAP gross margin expected to come in between 32% and 34%. Solar product sales are expected to form the bulk of revenue in the quarter at $405m to $420m.
SolarEdge's forecasted Q2 revenue
Last quarter, SolarEdge narrowly missed analyst expectations, delivering earnings of $0.98 a share against an expected $0.99. In the three quarters before the miss, SolarEdge had delivered a beat, with fourth-quarter 2020 earnings coming in at $0.98 a share against an expected $0.86 a share.
SolarEdge has said it expects commercial installations to increase in the second quarter, with commercial shipments improving globally. Other growth drivers for SolarEdge include geographic expansion - it has a presence in around 130 countries - growing market share and increasing average revenue per installation (ARPI).
SolarEdge is banking on a global increase in demand for energy. According to its first-quarter investor presentation, energy consumption per capita is expected to increase 23% by 2050. Between 2015 and 2050 solar energy generation is expected to increase by a factor of 60. At that point, almost a third of global electricity demand will be supplied by renewable energy.
Missing earnings expectations last quarter hit SolarEdge’s share price. The company blamed it on higher costs. However, David Miller, portfolio manager of the Catalyst Insider Buying Fund, told Barron’s in May that the disappointing earnings hadn’t changed SolarEdge’s longer-term potential.
Estimates suggest that the company’s earnings will grow at a CAGR of 24% over the next three years, with profit margin increasing to 16%. Then there’s President Biden’s promise to invest billions in clean energy which could have a rub off effect on the company.
“It’s almost like a duopoly where it’s SolarEdge and Enphase. As long as their technology is better, they should both be able to maintain strong growth and margins” - David Miller
SolarEdge leads the market with one other competitor - Enphase - and is therefore in a good position to benefit. The company will also start shipping a battery product, opening up an additional revenue stream that Miller suggests hasn’t been factored into earnings estimates.
“It’s almost like a duopoly where it’s SolarEdge and Enphase,” Miller said. “As long as their technology is better, they should both be able to maintain strong growth and margins.”
Among the analysts, SolarEdge’s share price has an average $296.20 price target - hitting this would see a 14% upside on Friday’s close.
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