Is the Enphase Energy share price set for another earnings beat?

Enphase Energy has seen strong share price growth in 2022 and that could be set to continue, with analysts anticipating that its upcoming earnings announcement could be buoyed by the impact of landmark legislation in the US.

Enphase Energy [ENPH] is due to announce Q3 results after markets close today. According to analysts, Enphase could be looking at a big increase in year-over-year revenues and earnings, with the former expected by Zacks analysts to grow 75.38% year-over-year to $616.5m and the latter to rise 78.3% to $1.07 per share.

The upcoming earnings report will be the first since US President Joe Biden’s landmark Inflation Reduction Act came into effect. Therefore, it presents investors with an early chance to see how much Enphase stands to benefit from the green energy provisions included in the legislation. The Act, which came into effect on 16 August, contains approximately $370bn of tax credits and subsidies for US-based clean energy investments, and could lead to $1.2 trillion in renewables investment by 2035, according to Wood Mackenzie.

Investors have been unsure to what extent Enphase stands to benefit materially from these provisions. An initial overestimate of its impact is believed by some observers to be the cause of a pullback of Enphase’s share price since reaching annual highs in mid-September.

Clean energy stocks outperform

The Enphase share price gained 38.5% in the year to 24 October, boosted in particular by a strong earnings beat in its Q2 results. Besides concerns over the Federal Reserve interest rate hikes, short sellers have piled into solar stocks, which has wiped off some of the stock’s subsequent gains.

Momentum, however, is with clean energy stocks this year. ETF provider HANetf’s      Thematic Review Survey, covering May to September, surveyed 50 wealth managers, with 92% of respondents indicating that they expect to increase their exposure to clean energy over the next 12 months. This comes largely as a result of the war in Ukraine highlighting the need for reduced reliance on fossil fuels.

Solar in particular was one of the best-performing themes according to the survey, and Enphase is the second-largest holding in HANetf’s S&P Global Clean Energy Select HANzero UCITS ETF [ZERO.L] with a 6.32% weighting as of 30 September.

The fund has fallen 20.4% in the year to its close on 24 October, with the underperformance of its third-largest holding, Plug Power [PLUG] seemingly causing a significant drag on the fund.

Enphase to expand revenues in the US

Enphase Energy’s Q2 results saw “record quarterly revenue of $530.2m” as well as non-GAAP diluted earnings per share (EPS) of $1.07. Year-over-year, revenue increased by 67.75% and EPS rose 101.9%.

This revenue performance exceeded the expectations of Zacks analysts by 4.66%, while EPS soared 28.92% above expectations. Enphase’s share price surged 17.9% on 27 July following the announcement and continued its upward trend throughout late summer.

At its close on 24 October, however, the stock was trading at $253.30, slightly below the jump it took following the previous announcement, signalling that its glow is wearing off and another positive set of results may be needed to push the stock back towards its 52-week high of $324.84, which it reached on 8 September.

President and CEO Badri Kothandaraman anticipated revenue growth of 40% in Europe from Q2 to Q3 in the previous earnings call. He separately told CNBC that though the company’s US market brings in 80% of its revenues, increased demand from Europe will help bring figures to a 50/50 ratio with global revenues within two years.

Analysts rate Enphase shares a ‘buy’

On 17 October, Kashy Harrison, VP of Equity Research at Piper Sandler, raised his price target from $265 to $280 and reiterated a ‘buy’ rating. Harrison believes that the Inflation Reduction Act’s impact will be the key watch-out for investors.

However, Mark Strouse of JPMorgan lowered his target from $321 to $289 on 20 October, maintaining an ‘overweight’ rating on the stock. While anticipating a rise in the Enphase share price, he believes that ongoing supply chain problems will hamper the company’s performance in the near-term. Overall, Strouse remains “generally bullish on the sector.”

Most analysts share a similar stance on Enphase, with 20 out of 32 polled by CNN Money rating the stock a ‘buy’, one rating it ‘outperform’, 10 a ‘hold’, and a single analyst rating the stock ‘sell’.

Among 26 analysts offering 12-month price targets for the stock, the median target of $291.50 is 15.1% above the 24 October close of $253.30. The high target of $363 represents gains of 43.3%, while the low target of $194 envisages the stock falling 23.4%.