Analysts bail on solar stocks after SolarEdge warning of weak earnings

Published Fri, Oct 20 202312:19 PM EDTUpdated Fri, Oct 20 20232:57 PM EDT

SolarEdge 's warning on Thursday of weakening European demand was another red flag following what has already been a tumultuous year for the solar industry. "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 SolarEdge CEO Zvi Lando in a statement . As a result, the solar product manufacturer pre-announced third-quarter revenue to as low as $720 million, down from a previous forecast that was as high as $920 million. The outlook drove down SolarEdge shares more than 29% on Friday to around $80 mid morning, versus its Thursday closing price of $113.98. The broader Invesco Solar ETF was about 7% lower on the day. Enphase Energy slid 15%, SunPower fell 11% and Sunrun dropped 7%. SEDG 1D mountain SEDG 1-day chart SolarEdge's plunge combined with its market capitalization of around $5 billion doesn't bode well for the company, said Gordon Haskett analyst Don Bilson. Without a recovery, he believes the stock is at risk of losing its S & P 500 membership. SolarEdge's third-quarter results come after the sector has already suffered steep sell-offs, plagued by growth fears, solar compensation cutbacks in California and the effect of rising interest rates in a highly sensitive industry. Several Wall Street investment banks downgraded SolarEdge and slashed their price targets in reaction to the pre-announcement. Deutsche Bank downgraded SolarEdge , along with peer solar stocks Sunrun and Sunnova , to a hold rating from buy. Analyst Corinne Blanchard halved SolarEdge's price target to $150 from $300, although this still implies 32% potential upside from the stock's Thursday close. Besides waning European demand, Blanchard highlighted that U.S. demand has also declined and may not bottom until early 2024. "We believe 3Q23 earnings will likely be another setback for the solar industry, as sluggish demand continues in the U.S. on the residential side, as well as further signs of weakness in some key European countries," she wrote. "We believe it will take another 6 to 9 months until we could see improvements and a potential recovery into 2H24." Goldman Sachs followed suit with a downgrade to neutral from buy. This was accompanied by a 12-month price target cut to $131 from $254, which still suggests nearly 15% upside for the stock. Although SolarEdge has now plunged 72% in 2023, Goldman analyst Brian Lee said issues such as fading guidance, a lack of clarity on a recovery in demand and an unclear profit trajectory still don't make for an attractive entry point. "After a second straight disappointing quarter of results/guidance, we find it hard to defend the stock," he wrote. "We underestimated the effects of the combination of ongoing inventory, end market demand, and now margin issues that are likely to serve as headwinds for the stock for the foreseeable future given what appears to be a significant deterioration in visibility." Likewise, both Oppenheimer and Roth said they were stepping aside until the industry's fundamentals begin to stabilize. Oppenheimer downgraded SolarEdge to perform. Roth downgraded the stock to a neutral rating, lowering its price target to $100 from $280. Analyst Philip Shen cited increased pressure from Chinese manufacturers as an additional threat to SolarEdge's European business. Bank of America, which had the most pessimistic of the revised price forecasts, cautioned that the sell-off was "not just another destock story." Analyst Julien Dumoulin-Smith downgraded the stock to underperform from neutral, slashing his price target to $65 from $146. "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," the analyst wrote in a Friday note. He added that management's lack of forecast ability, combined with limited clarity on the stock's near-term outlook and recovery, challenged "the argument of SEDG as a long-term value call." — CNBC's Michael Bloom contributed to this report.