Israeli solar energy company SolarEdge Technologies (Nasdaq: SEDG) has lost more than 90% of its value since November 2021, when it had a market cap of over $20 billion and was Israel's most valuable company on Wall Street. The company's share price was down a further 16% at the opening of trading today, giving a market cap of $1.58 billion, after raising a $300 million convertible bond, with an option to raise an additional $45 million.
SolarEdge, managed by CEO Zvi Lando, develops and markets solutions for the solar energy industry including inverters, optimizers and batteries and communications devices for monitoring solar energy systems. These systems are designed to maximize energy production from the sun and cut electricity production costs.
The company was founded in 2006 by the late Guy Sella and held its Nasdaq IPO in 2015 at a company valuation of $685 million. In 2019 Lando, formerly VP sales took over at the helm after the untimely death of Sella. The company went from strength to strength and when its share price was at its peak at the end of 2021, it joined the S&P 500 Index.
The upward trend changed sharply during the post-Covid supply chain problems of 2023. Last August, SolarEdge surprised the market with a lower forecast than expected for the third quarter, and the share price plunged. In October a profit warning once again pushed the share price lower and the market understood that this was more than just a slowdown in growth but also a fall in revenue.
SolarEdge explained at the time that it had experienced significant and unexpected cancellations and delays in its order backlog, due to the high inventory levels accumulated by distributors. Distributors had stockpiled during peak demand, due to supply chain difficulties and the desire to deliver the products on time. Subsequently, accumulated inventory and a slower rate of installation, led to a cut in new orders, harming the company's results. At the end of 2023, Lando told "Globes" that the stabilization of electricity prices and higher interest rates has lowered investment in solar power, although demand was still firm.
The market was not understanding and the share price continued to fall. In 2023 its share price had a weaker return than any other stock on the S&P 500 and it was relegated to the S&P Midcap 400.
At the start of 2023, when the trend was positive, analysts expected the company to pass the $1 billion threshold in quarterly revenue. But the most recent quarters were significantly weaker ($316 million in the last quarter of 2023 and $204 million in the first quarter of 2024, with an improvement expected in the second quarter to $250-280 million). This, in addition to reporting losses. The expectation is that quarterly revenue will eventually stabilize around $600-700 million, with SolarEdge needing to adjust its cost structure. At the start of 2024, the company announced the layoff of 900 employees, including 550 in Israel - most of them at the company's headquarters in Herzliya and some at the production plant in Tsiporit near Nazareth. Before the layoffs, the company had 5,633 employees, of which 3,160 were in Israel.
The future: New products, acquisitions, and double the current price target
SolarEdge is continuing as if it was business as usual. The company recently announced the launch of new products, including a product designed for the domestic market in Europe and a solar power and storage solution. Two months ago, SolarEdge made the small acquisition of Israeli startup Wevo, which specializes in the optimization of electric vehicle charging and management EV charging points in buildings and parking lots. SolarEdge paid $13.3 million for balance of the shares in the company, having previously invested in it. Despite a decline in its cash and investments, SolarEdge still has close to $950 million in cash (as of the end of the first quarter), compared to long-term debt of $628 million to its convertible bond holders.
According to "The Wall Street Journal", most analysts covering SolarEdge today are "sitting on the fence." Out of 33 analysts, 25 have neutral recommendations (Hold), while only three have negative recommendations ("Underperform" or "Sell") while there are five positive recommendations ("Buy" or "Outperform").
The recent sharp drop in the share price has meant that the average target price for SolarEdge stock is significantly higher than the price on Nasdaq - $64.4 on average, over double the current price of about $28.
Analysts today expect the company to put the inventory issue behind it, but wonder when that will happen. Oppenheimer recently predicted that the issue will continue throughout 2024, while at the same time SolarEdge would maintain its market share in Europe, its main market.
The prospect of interest rate cuts in key markets in the future may also improve sentiment towards the stock, because solar installations are often financed through loans, and when interest rates fall, it is cheaper to install, so demand may increase.
Published by Globes, Israel business news - en.globes.co.il - on June 25, 2024.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2024.