This renewable energy company is seeing double-digit growth, has a #1 Strong Buy rating and Zacks and JP Morgan just initiated coverage of its shares, with an “Overweight” rating.
SolarEdge Technologies Inc. (SEDG)
From The Cutting Edge
An emerging powerhouse in the renewable energy market is SolarEdge Technologies Inc. (SEDG).
SolarEdge provides a range of solar products including power optimizers, solar inverters, and monitoring solutions for photovoltaic arrays. In short, these products allow consumers to increase energy efficiency of solar through what’s called module level power electronics, or MLPE.
According to IHS, the global market for module-level power electronics is expected to grow to $1 billion by 2019, representing a compound annual growth rate of 19% from today. SolarEdge controls approximately 70% of the DC power optimizer market, and an estimated 20% of the inverter market (compared to just 1.7% in 2012).
The U.S. market accounts for a large proportion (72%) of SolarEdge’s latest revenues. About 32.3% of its total sales comes from a single customer, identified as ‘Customer B’ in its recent S-1 filing.
SolarCity is in all likelihood the only company large enough to account for that proportion of SolarEdge’s revenue. While this does represent significant exposure to a single customer, it also means a crucial launching pad in the U.S. residential space.
SolarEdge is currently looking to increase its market share of the growing U.S. residential landscape, and SolarCity is certainly not a bad customer to have on board in what will be a huge market in 2016.
According to GTM Research’s director of solar research, MJ Shiao, the U.S. residential market is expected to grow at 50% to 55% year-over-year ahead of the ITC (investment tax credit) cliff in 2017. This represents a very strong growth opportunity for MLPE vendors like SolarEdge.
But the U.S. market is only a piece of a much larger story. Long term, IHS analysts expect tremendous growth from the international community
The firm reported second quarter earnings earlier this month, with sales surging 70% to $124.8 million year-over-year. And gross margins came in at 30.9%, up from 21.5% during the same period last year. This exceeded previous guidance figures of 28-30%, thanks in part to the help of cost reductions achieved through a new automated fabrication plant located in Hungary. Notably, the fab is still only 20% operational, indicating further cost reductions in the future.
SolarEdge’s outlook heading into the third quarter is very positive, with similar expectations to its stellar second quarter performance. Revenues are expected within the range of $121 to $125 million, and gross margin is forecast in the range of 29-31%.
In addition to its recent success in U.S. residential and commercial markets, SolarEdge has also recently scored a partnership with Tesla Inc. that’s expected to boost revenue for the company later this year. Specifically, SolarEdge will be providing an inverter solution for Tesla’s new home battery, the Powerwall.
Additionally, we’re expecting an uptick in revenue later this year from the launch of SolarEdge’s new HD-Wave technology, which the company claims represents “the most significant leap forward in inverter technology for 20 years.”
In addition to greatly reducing costs, SolarEdge’s HD-Wave inverters are claimed to increase efficiency from 97.5% to 99%. That might not seem like a big improvement, but all said and done, it means the inverters dissipate less than half the heat of current models.
With a number of new products launching, strong growth in the U.S. market, and substantial cost reduction, SolarEdge has positioned itself as a clear leader what will prove to be a rapidly expanding industry.
Despite its recent success and overwhelmingly positive outlook, though, $SEDG has had a pretty rough ride since its entry into the public market last year. Shares are down significantly from their late June peak, but have begun to rally since hitting a floor in late 2015.
With SolarEdge showing little signs of retreating back to last year’s lows, we’re taking the opportunity to begin accumulating shares. The support looks strong at $15.00, but we’re not waiting for those prices.
We rate SolarEdge Technologies Inc.( SEDG) as a ‘Strong Buy’ under $28.00. The Risk level is Medium.
Jason Stutman, The Cutting Edge, www.angelpub.com, 877-303-4529, February 2016