Skip These 2 Solar Stocks, JPMorgan Warns – TradingView News

As the renewable energy sector continues to grow, investors are increasingly drawn to solar stocks, anticipating significant returns from this promising industry. However, a recent analysis by JPMorgan Chase JPM prompted the issuance of warnings against two solar energy companies – Enphase Energy, Inc. ENPH and SolarEdge Technologies, Inc. SEDG.

Following the Intersolar Europe Conference 2024, JPMorgan significantly lowered its year-end price target for these two names. The investment company’s decision results from concerns about declining demand in the European solar energy market for households, combined with persistently low energy prices and political uncertainty. Together, these factors contribute to a more conservative outlook for these companies in the near term. Let’s take a closer look at these stocks.

Solar Energy Stock #1: Enphase

With a market capitalization of approximately $13.9 billion, California-based Enphase Energy, Inc. ENPH designs, develops, produces and sells home energy solutions for the photovoltaic (PV) industry. Founded in 2006, Enphase revolutionized the photovoltaic industry with microinverter technology, turning sunlight into a safe, reliable and scalable energy source.

With approximately 68 million microinverters shipped and 3.5 million systems deployed in more than 145 countries, Enphase is at the forefront of the future of clean energy, helping millions gain access to affordable, reliable energy while supporting job creation and a carbon-free world.

However, the solar equipment company’s shares lag significantly behind the broader market. Over the last 52 weeks, the stock has fallen nearly 36.1% compared to the S&P 500 Index SPX an increase of 26.3% over the same period. Year-to-date, ENPH stock is down 23% compared to the SPX’s return of 14.6%.

From a valuation standpoint, the company’s stock is trading at 70.99 times forward earnings, which is significantly higher than its industry peers and its own five-year average.

On April 23, Enphase announced its first-quarter results, which missed Wall Street forecasts on both earnings and profits, causing its stock to decline 5.6% in the next trading session. Total revenue for the quarter was $263.3 million, an annual decline of 63.7%, driven by seasonal factors, weakened U.S. demand and strategic inventory management.

On an adjusted basis, the company earned $0.35 per share, down 74% year over year. The company ended the quarter with approximately $1.6 billion in cash, cash equivalents and marketable securities while achieving operating cash flow of $49.2 million. Additionally, capital expenditures were $7.4 million in the quarter, compared to $20.1 million in the fourth quarter of fiscal 2023, reflecting reduced spending in the U.S. manufacturing industry.

Management anticipates second-quarter revenues of $290 million to $330 million and GAAP gross margin of 42% to 45%. Additionally, non-GAAP operating costs are expected to be between $78 million and $82 million.

Analysts following Enphase predict the company’s earnings will decline 54.6% year over year to $1.50 per share in fiscal 2024, but will increase 136.2% to $3.53 per share in fiscal 2025.

Driven by pessimism about residential solar demand in Europe, JPMorgan lowered its price target for Enphase from $128 to $124. This new target suggests a potential upside of 21.8% from current levels.

ENPH stock has an overall rating of “Moderate Buy.” Of the 35 analysts offering recommendations on the stock, 18 recommend “Strong Buy”, three “Moderate Buy”, 11 “Hold”, one “Moderate Sell” and the remaining two “Strong Buy” Sell.

The $126.68 average analyst price target indicates a potential upside of 24.2% from current price levels. The high price target of $173 suggests the stock could rise as much as 69.6%.

Solar Energy Storage #2: SolarEdge

Founded in 2006, the Israeli company SolarEdge Technologies, Inc. SEDG revolutionized the process of energy capture and management in photovoltaic systems with its DC-optimized inverter solution that maximizes energy production and lowers energy costs, increasing the return on investment for photovoltaic systems.

Valued at $1.5 billion in market capitalization, the company continues to advance smart energy solutions across market segments with a diverse product portfolio that includes residential, commercial and large-scale solar PV systems, storage and backup solutions energy, electric vehicle (EV) charging, and more.

Like Enphase, SolarEdge shares have fallen sharply, losing nearly 90% over the past 52 weeks and 73.2% year-to-date, weighing heavily on the double-digit returns of the broader SPX index over both periods.

In terms of valuation, the company’s stock trades at 0.64 times, which is significantly lower than its industry peers and its own five-year average.

After the company’s unimpressive first-quarter financial results were announced on May 8, the company’s shares fell almost 8.5% in the following trading session. SolarEdge’s revenue of $204.4 million fell a significant 78.4% year-over-year, but managed to beat estimates by 4.8%. Its solar segment brought in $190.1 million in revenue, a staggering 79% decline from the $908.5 million reported a year earlier.

The company’s non-GAAP loss of $1.90 per share increased 166.7% from the same period last year and was higher than Wall Street estimates. Additionally, as of March 31, SolarEdge’s liquid assets totaled $316.3 million, up from $634.7 million reported at the end of fiscal 2023.

Commenting on the first quarter results, CEO Zvi Lando said: “As we enter spring, a time when installs have historically tended to increase, we expect channel inventory to continue to decline while revenues increase. In parallel, we are focusing on the suite of new products we plan to launch over the next few quarters to prepare for the next growth cycle in our industry.

Management expects second-quarter revenue to be in the range of $250 million to $280 million, with revenue from the solar segment expected to be in the range of $225 million to $255 million. Non-GAAP operating costs are also expected to be between $116 million and $120 million.

Analysts tracking SolarEdge expect the company’s loss to widen sharply to $6.12 per share in fiscal 2024 before posting a profit of $0.43 per share in fiscal 2025.

JPMorgan lowered their price target on SolarEdge shares from $73 to $59, which still implies an ambitious upside potential of 134% from current levels.

SEDG shares have an overall recommendation of “Hold”. Of the 31 analysts covering the stock, four recommend a “Strong Buy”, one suggests a “Moderate Buy”, 22 recommend a “Hold”, one recommends a “Moderate Sell” and the remaining three give a “Strong Sell” recommendation.

The analysts’ average price target of $69.67 implies a potential upside of 177.3% from current price levels, while the high price target of $129 implies an impressive upside potential of 413%.

As of the date of publication, Anushka Mukherji did not have a position (directly or indirectly) in any of the securities mentioned in this article. All information and data contained in this article are for informational purposes only. For more information, please review Barchart’s Disclosure Policy here.