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Investing.com -- Wall Street analysts cut ratings on U.S. residential solar companies given a weaker demand, margin risks and growing uncertainty around federal tax incentives.
Guggenheim cut Enphase Energy (NASDAQ:ENPH) and SolarEdge Technologies (NASDAQ:SEDG) to Sell, flagging worsening fundamentals following Enphase’s first-quarter earnings report.
The firm set a $33 price target on Enphase, saying the company’s results were “worse than initially apparent,” with revenue growth stalling even after benefiting from short-term tax-driven demand in early 2025.
Guggenheim analysts were skeptical of Enphase’s claim it could fully recover gross margins in its energy storage business, citing higher costs of non-Chinese battery cells and likely pressure on demand from price hikes.
“What is not credible, in our view, is ENPH’s assertion that it can reclaim all of its lost margin,” analysts at Guggenheim wrote.
SolarEdge also faces headwinds, Guggenheim said, pointing to similar demand issues in Europe and the U.S., and warning that consensus expectations for 2026 are too optimistic.
It assigned a $5 price target and projected that SolarEdge will not return to positive EBITDA before 2027.
At the same time, Morgan Stanley (NYSE:MS) downgraded Enphase and SolarEdge to “Underweight” and lowered Sunrun (NASDAQ:RUN) to “Equal-weight” given the increased risks from weakening rooftop solar economics and potential changes to the Inflation Reduction Act (IRA).
It said demand for residential systems is more vulnerable to consumer sentiment and regulatory shifts, while reiterating a more positive view on utility-scale players First Solar (NASDAQ:FSLR) and Shoals Technologies.
Rooftop solar demand faces heightened downside risk, Morgan Stanley wrote, adding that residential installation slowdowns may also weigh on asset-backed securities issuance.
The brokerages warned of continued volatility until there is greater clarity on IRA provisions in the second half of 2025.