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Why Are Solar Stocks ENPH, RUN, SEDG, SPWR Down Today?


  • Solar technology specialist Enphase Energy (ENPH) revealed a heavily caveated solid Q1 report.
  • Weaker-than-expected forecasted Q2 sales sank rivals like Sunrun (RUN), SolarEdge Technologies (SEDG) and SunPower (SPWR).
  • Solar stocks primarily face consequences from a rising interest rate environment.
Solar stocks - Why Are Solar Stocks ENPH, RUN, SEDG, SPWR Down Today?

Source: Simone Hogan / Shutterstock.com

On paper, without any other context, solar technology specialist Enphase Energy (NASDAQ:ENPH) delivered encouraging results for its first-quarter earnings report. According to Zacks Equity Research, Enphase generated earnings per share of $1.37, beating the consensus target of $1.21. Revenue also slightly pipped the estimate by 0.36%. Unfortunately, management posted a disappointing Q2 sales forecast, sharply sending ENPH and other solar stocks down.

Starkly, the pessimism cast an unmistakable shadow over what had been a robust, resilient sector. For ENPH stock, it obviously absorbed the brunt of the damage, falling over 24%. However, other solar stocks did not fare that much better. Sunrun (NASDAQ:RUN) slipped over 6%, SolarEdge Technologies (NASDAQ:SEDG) dipped almost 9% and SunPower (NASDAQ:SPWR) also gave up nearly 9% on Tuesday early afternoon.

During Q1, Enphase’s revenue jumped 65% to $726 million, primarily from higher European sales. Notably, ongoing data indicates that momentum in Europe remains strong. However, Raymond James analyst Pavel Molchanov told Reuters that net metering reform in California might impose headwinds in Q2. Therefore, the two factors are essentially canceling each other out.

The new metering policy changes a decades-old protocol that enabled homeowners with solar panels to sell any excess power to their utility at or near the full retail rate, per Reuters. Thus, the implication of a negative impact on a key market hurts ENPH and other solar stocks.

The Fed Also Slaps Down Solar Stocks

Causing the most furor over Enphase’s earnings disclosure was management’s Q2 sales forecast. The solar energy specialist expects Q2 revenue to land between $700 million and $750 million. Unfortunately, this range dipped below analysts’ estimate of $773 million, according to Refinitiv data. Subsequently, rival solar stocks fell on the negative implications for the industry.

While California’s reform and strong European sales may negate each other, the Federal Reserve decisively clouded the narrative. When inflation skyrocketed last year, the central bank responded with aggressive interest rate hikes. By essentially restricting liquidity, fewer dollars will chase after more goods. However, this process inherently raises borrowing costs.

Ominously, Enphase CEO Badri Kothandaraman told Barron’s following the Q1 earnings release that higher interest rates appear to disincentive solar adoption in several states. “The installers aren’t signing up with more customers, because the interest rates are quite high relative to the utility rates,” the chief executive stated.

As Barron’s explained, “[l]ow utility rates in some states dissuade consumers from switching to home solar because they mean purchasers won’t be saving enough money.”

Broadly speaking, then, the economics have become much less attractive for customers who might have made the transition. Generally speaking, the payback (breakeven) period for those integrating solar panels into their homes is seven to 10 years. But higher interest rates and unfavorably reforms extend this period to several more years.

Why It Matters

Currently, TipRanks notes that ENPH stock carries a strong buy consensus view with an average price target of $268.38. This estimate implies an upside potential of nearly 62%. However, Barron’s reported that Bank of American analyst Julien Dumoulin-Smith downgraded ENPH to “underperform” from “neutral.” Also, the expert lowered the price target to $169 from $227.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.

Article printed from InvestorPlace Media, https://investorplace.com/2023/04/why-are-solar-stocks-enph-run-sedg-spwr-down-today/.

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