SolarEdge Down 30%; Major Warning About Demand In Europe Drags Down Solar Stocks

Solar stocks took a huge hit Friday after a top manufacturer warned that demand in Europe had significantly weakened.

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SolarEdge Technologies (SEDG) fell nearly 30% on the stock market today. That’s after it slashed its outlook for the third-quarter in preliminary numbers published late Thursday. Several solar stocks fell in sympathy. The Invesco Solar ETF (TAN) designed to track the industry fell 6% Friday.

SolarEdge, an S&P 500 company, cut its third-quarter revenue guidance to between $720 million and $730 million, compared to previous guide of $880 million to $920 million.

“During the second part of the third quarter of 2023, we experienced substantial unexpected cancellations and pushouts of existing backlog from our European distributors,” said Zvi Lando, Chief Executive of SolarEdge, in the announcement. “We attribute these cancellations and pushouts to higher than expected inventory in the channels and slower than expected installation rates.”

Further, the statement added, “installation rates for the third quarter were much slower at the end of the summer and in September where traditionally there is a rise in installation rates.”

Solar Stocks Take Broader Hit

Shares for solar companies have already been struggling this year in response to inflation, rate hikes and supply-chain issues. SolarEdge’s warning dragged solar stocks further.

Fellow manufacturer Enphase Energy (ENPH) fell 14.7%. Solar developer SunPower (SPWR) fell 8.6%, while manufacturer First Solar (FSLR) closed down a more modest .8%.

The 25 solar stocks tracked by IBD MarketSmith in the Energy-Solar industry group have already lost a cumulative 38% in 2023 as of Thursday. The group is the worst performer among the 197 industry categories tracked by MarketSmith, based on six-month price performance.

Rough Year For SolarEdge

SolarEdge is a top provider of inverters and power optimizers for solar power systems. Inverters convert direct current produced by solar panels into alternating current.

On the year, SolarEdge stock is down nearly 75%, placing it among the worst performers in the S&P 500. The release Thursday wiped out some serious value: SolarEdge stock closed trading Thursday at 113.98, and opened Friday at 75.57. The company is on pace for its worst daily decline on record and lowest share price since April 2020, according to Dow Jones Market Data.

Along with cutting its revenue forecast, SolarEdge said its adjusted margins will come in between 20.1% and 21.1% for the third-quarter. The company previously projected margins between 28% and 31%.

Further, the outlook for adjusted operating income was cut from a midpoint if $125 million to just $21.5 million, at the midpoint of its new range.

Additionally, SolarEdge said it expects “significantly lower revenues” in the fourth quarter, which it attributed to a continuing “inventory destocking process.”

SolarEdge will report full earnings on Nov. 1.

Analysts Trim Outlook

Analysts quickly trimmed forecasts following the report. SolarEdge is now expected to post adjusted earnings per share of $1.27 in the third quarter, according to FactSet. At the end of September, analysts were project $1.85 in adjusted EPS.

BofA Securities cut SolarEdge to underperform from neutral and set a price target of 65.

“Critically, this messaging is starkly more negative than several data points would have suggested even late into the quarter including commentary from management at ours and competitor conferences,” wrote BofA analyst Julien Dumoulin-Smith in a client note Friday. “While it’s tempting to write this off as a one-off and yet another inventory/destocking story in (residential) solar, the pace of shift in the narrative warrants caution.”

Goldman Sachs downgraded SolarEdge to neutral from buy and chopped its price target to 131 from 254.

Analysts see broader concern for solar stocks in the news, as well. Dumoulin-Smith noted that rival manufacturer Enphase has less exposure to Europe. But BofA still trimmed its expectations for Enphase’s Q3 earnings by 10%, to an adjusted $6.33 per share. BofA rates Enphase as underperform with an 84 price target.

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