Enphase (NASDAQ:ENPH) stock is trending and sinking about 13% this morning after the company reported much weaker-than-expected third-quarter results and provided Q4 guidance that was also significantly less than analysts’ average estimates. Enphase markets inverters that enable solar power to be converted to electricity.
Among the factors that caused the miss were elevated interest rates, a regulatory change in California, and excess inventories in Europe. However, Enphase believes that the solar market can begin to recover in the second quarter of 2024.
Enphase’s Q3 Results and Q4 Guidance
The company’s revenue sank 13% last quarter versus the same period a year earlier to $551 million. Analysts’ average estimate was $535 million. ENPH’s earnings per share fell to 80 cents from $1.09 in Q3 of 2022.
For the current quarter, Enphase expects its sales to come in at $300 million to $350 million, well below analysts’ mean outlook of $577 million.
The Reasons Behind the Miss and More About Enphase’s Outlook
California regulators allowed utilities in the state to pay residential customers with solar panels much less than previously for the electricity they generate and send to the grid. As a result, Enphase’s distributors sold 25% fewer of the company’s microinverters last quarter than in Q2, the company’s CEO, Badri Kothandaraman, reported on the firm’s earnings call. On the positive side, however, “in a few quarters,” Kothandaraman expects the sales of ENPH’s microinverters in the state to “normalize…to…levels” that they had reached before the regulatory change.
Meanwhile, higher interest rates have hurt the demand for the company’s inverters in all of the U.S., but the CEO reports that the demand for its products is “stabilizing” outside of California.
In Europe, Enphase’s revenue tumbled 34% last quarter versus Q2. Kothandaraman explained that European distributors ordered an excessive number of solar panels following Russia’s invasion of Ukraine. As a result, they are working through their inventories and are consequently buying far fewer panels than they had previously. Noting that the Netherlands, France, and Germany are the company’s three largest European markets, the CEO believes that the Netherlands and France can rebound relatively soon, while he sees signs of improvement in Germany.
Overall, the CEO remains upbeat about the company’s long-term outlook, citing tax breaks in the U.S., high adoption of EVs worldwide and rising electricity rates. I agree that these trends do bode well for the long-term outlook of ENPH stock.
As of this writing, Larry Ramer did not hold (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.