On Thursday, Mizuho (NYSE:MFG) Securities adjusted its outlook on shares of SolarEdge Technologies (NASDAQ:SEDG), a company specializing in solar inverter technology. The firm downgraded the stock from Outperform to Neutral and significantly reduced the price target to $11 from the previous $35.
This change in rating is driven by several anticipated challenges for SolarEdge, including a decrease in demand from European markets, lower average selling prices (ASPs), and reduced EBITDA margins projected through 2026.
The revised price target of $11 reflects a 68% decrease, or a $24 per share reduction, from the prior target. Mizuho's analysis points to weaker European demand, lower fire-sale ASPs, and a contraction in EBITDA margin until at least 2026, contributing a $14 per share decrease.
Moreover, the potential loss of tax credits and slower growth in the U.S. market under the anticipated policies of a second Trump administration are expected to further reduce the target by $10 per share.
The downgrade to Neutral is based on the limited visibility into the recovery of demand in Europe, the uncertain timeline for positive EBITDA, and current valuation concerns. Mizuho's price target suggests a 7 times multiple of their estimated 2026 EBITDA for SolarEdge, while the stock is currently trading at approximately 8 times that figure, with the average for peers around 9 times.
The firm has also adjusted its revenue forecasts for SolarEdge for the years 2024, 2025, and 2026, with reductions of 11%, 36%, and 29%, respectively. Mizuho now anticipates that the company will achieve double-digit gross margin percentages by 2026, a year later than previously expected. This outlook presents a more conservative stance on the company's financial performance in the coming years.
In other recent news, SolarEdge Technologies grapples with significant financial challenges, as signaled by recent analyst adjustments and the company's own financial reports.
JPMorgan, BofA Securities, and Piper Sandler have all adjusted their outlooks on SolarEdge, with JPMorgan cutting its stock price target to $18.00, BofA Securities reducing its price target to $10.00, and Piper Sandler downgrading the stock to Underweight and reducing the price target to $9.00.
These adjustments come after SolarEdge reported a third-quarter loss of $15.33 per share, significantly higher than the projected loss of $1.65 per share. The company's revenue also declined by 64% year-over-year to $260.9 million, falling short of the estimated $272.8 million. Looking ahead, SolarEdge's Q4 projections are not meeting expectations, with projected revenue between $180 million and $200 million, well beneath the consensus of $309.2 million.
In response to these financial challenges, Interim CEO Ronen Faier has emphasized the company's focus on financial stability and refocusing on core solar and storage opportunities. Amid these developments, SolarEdge is in the process of appointing a new CEO, with an announcement expected before the end of the year. These are the recent developments in SolarEdge's financial standing.
InvestingPro Insights
Recent data from InvestingPro paints a challenging picture for SolarEdge Technologies, aligning with Mizuho's downgrade. The company's market capitalization has shrunk to $750.06 million, reflecting investor concerns. SolarEdge's revenue growth has taken a significant hit, with a 70.52% decline in the last twelve months as of Q3 2024, corroborating Mizuho's projections of weaker demand and lower ASPs.
InvestingPro Tips highlight that SolarEdge is "quickly burning through cash" and "suffers from weak gross profit margins," which supports Mizuho's concerns about EBITDA margins. The stock's performance has been notably poor, with a 79.94% decline over the past year, trading near its 52-week low. This aligns with the analyst's reduced price target and downgrade to Neutral.
For investors seeking a more comprehensive analysis, InvestingPro offers 17 additional tips for SolarEdge Technologies, providing deeper insights into the company's financial health and market position.
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