SolarEdge Technologies, a renowned manufacturer of solar panels and inverters, has witnessed a significant drop in its shares, marking the most substantial decline in nearly a year. The company’s disappointing forecast for the third quarter has played a crucial role in dampening investor sentiment.
This unsettling guidance closely follows a similar projection made by Enphase Energy (ticker: ENPHS), another prominent player in the solar industry.
In terms of second-quarter performance, SolarEdge (SEDG) managed to exceed expectations with adjusted earnings of $2.62 per share, surpassing the estimated $2.56 per share. However, revenue came in at $991.3 million, falling slightly short of the projected $993.9 million.
However, it was the third-quarter forecast that rattled the markets. SolarEdge anticipates revenue to be in the range of $880 million to $920 million, a substantial decrease compared to Wall Street’s estimate of $1.05 billion.
Explaining the reasoning behind this somber outlook, CEO Zvi Lando pointed out that the current residential solar market in the United States is facing headwinds primarily due to higher interest rates. The escalating interest rates directly increase borrowing costs, and since many individuals secure loans to fund their solar panel installations, this trend has adversely affected the market.
Consequently, on Wednesday, SolarEdge’s shares plunged by 18% to reach $195.51. This remarkable decline represents the stock’s most significant percentage decrease since August 2022 when it tumbled by 19%, according to Dow Jones Market Data.
SolarEdge Faces Challenges Amid Drop in Demand
Analysts at Susquehanna have identified a key challenge that SolarEdge, a leading player in the solar industry, is facing. According to them, the drop in demand has resulted in an inventory buildup. The company also anticipates a reduction in battery shipments in the coming quarter. This is due to the fact that battery shipments have surpassed their inverter supply, and SolarEdge needs to catch up.
Despite these setbacks, some analysts remain positive about SolarEdge’s prospects. Analysts at Guggenheim acknowledge the disappointing guidance but still view SolarEdge as the best option for participating in distributed solar growth. However, they have revised their price target down from $400 to $290 and adjusted their estimates accordingly.
SolarEdge is not alone in facing challenges within the solar industry. Its competitor, Enphase, also recently announced a weak revenue outlook for the third quarter. Enphase cited a buildup of inventory as the reason for its decision to cut shipments. Additionally, Enphase’s CEO, Badrinarayanan Kothandaraman, attributes this inventory buildup to weak demand for solar-power equipment in the U.S., which can be attributed to high interest rates.
Overall, it has been a tough year for solar stocks, with SolarEdge and Enphase witnessing declines of 31% and 47%, respectively.