Goldman upgrades SolarEdge to a buy, sees more than 20% upside ahead

Published Thu, May 20 20216:09 AM EDTUpdated Thu, May 20 20217:54 AM EDT

The recent sell-off in shares of SolarEdge is overdone, and catalysts on the horizon including earnings upside and new product ramps make it an attractive name to own, Goldman Sachs said in a note to clients while upgrading the stock to a buy rating. The firm noted that while solar stocks generally have historically been volatile, the 40% to 50% decline over the last three months occurred despite solid fundamentals. Analysts led by Brian Lee said the weakness has been driven by a downtick in valuations, which now reflect pre-Biden nomination levels. Ultimately, this suggests that "limited policy catalysts are being baked into the group." While President Joe Biden's initiatives, including his more than $2 trillion infrastructure package unveiled earlier this spring, can act as a tailwind for the group, the firm has focused on company-specific catalysts when evaluating its solar stock coverage universe. Shares of SolarEdge are down more than 10% since the company reported first-quarter earnings on May 3. The results beat top- and bottom-line forecasts, but the company warned of supply constraints and said rising ocean freight costs would weigh on margins. But Goldman said the company is better positioned to weather macro market issues than competitors including Enphase, due to policies SolarEdge has installed in order to combat supply-chain issues. "We believe the company is set for renewed growth and potentially more operational upside as it launches its new resi storage product to a rapidly growing market in which demand has so far exceeded supply, which we view essentially as a high quality problem for SEDG being a new entrant into the space," Lee wrote in a note to clients. The firm did, however, cut its target on the stock from $312 to $290. The new target is 24% above where shares closed on Wednesday. The stock advanced 2.3% during premarket trading Thursday morning. Lee also upgraded Shoals Technologies Group to a buy rating, and reiterated his positive view on shares of Sunnova , Sunrun and Enphase Energy . - CNBC's Michael Bloom contributed reporting.

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The firm noted that while solar stocks generally have historically been volatile, the 40% to 50% decline over the last three months occurred despite solid fundamentals. Analysts led by Brian Lee said the weakness has been driven by a downtick in valuations, which now reflect pre-Biden nomination levels. Ultimately, this suggests that "limited policy catalysts are being baked into the group."