I posted this recently and it seemed to get lost. I thought it was worth looking at at least so I’m going to repost it.
Khleb saw an Investor Business Daily story about this stock and then looked at their most recent quarterly report and found a stock which was, to use his words, growing like crazy, with good and growing margins, no debt, operating expenses falling as a percent of revenue, and with positive earnings that are also growing rapidly sequentially.
He posted this back at post 8948. The thread was just one post long. I looked at the company, whose name is SolarEdge (SEDG) and decided to take a small (but not tiny) position.
Let me tell you a little about it. This is an Israeli company that makes something called an intelligent inverter that apparently is revolutionizing how power is turned into electricity in solar systems. I don’t understand anything about it. It just had its IPO a few months ago. What I do understand is that Solar City and Tesla have both become customers, as well as other large solar companies like Vivint Solar.
I also understand figures like this from their first quarterly earnings report as a public company.
Revenue of $86.4 million, up 18% SEQUENTIALLY, and up 183% from $30.6 million a year ago. That’s REVENUE! Up 183%!
Adjusted Net of $8.7 million, up 112% SEQUENTIALLY from $4.1%, and up from a loss of $5.2 million the year before.
Adjusted Gross Margin of 27.6%, up SEQUENTIALLY from 21.6% due to increased manufacturing ability meaning less need for air shipments to keep up with orders, due to economies of scale, and due to cost reductions.
Adjusted Earnings of 20 cents, up over 100% SEQUENTIALLY from 9 cents and up from a loss of 12 cents a year ago. (I figured each of the past quarters with the same 44.1 million shares that they had after the IPO to make them comparable.
This is not without risk. The danger is that they will be become a commodity product as there is always a better technology over the horizon, but for right now, they are growing like mad.
Here are some of my notes gathered from various articles and the quarterly report.
May 2015 – March quarter results
SolarEdge provides an intelligent inverter solution that has changed the way power is harvested and managed in solar photovoltaic systems. The SolarEdge DC optimized inverter system maximizes power generation at the individual PV module-level while lowering the cost of energy produced by the solar PV system. The SolarEdge system consists of power optimizers, inverters and a cloud-based monitoring platform and addresses a broad range of solar market segments, from residential solar installations to commercial and small utility-scale solar installations.
Highlights of the March quarter
Revenue of $86.4 million, up 18% sequentially and up 183% year-over-year
Gross margin of 27.6%
Adj net income of $8.7 million
248 Megawatts AC inverters shipped
I am happy to report record revenues of $86 million this quarter. This is in line with our expectations of moderate growth despite seasonality, coupled with the addition of a new sizeable customer.
We expect revenue growth to continue through 2015 as originally projected. Our increased manufacturing capacity allowed us to reduce air shipments, which combined with our planned cost reduction activities, increased our gross margin. The result of these two factors drove Adj net profit to $8.7 million for the quarter, our third consecutive profitable quarter. We continued to see strong growth in the United States and Europe both in the residential and commercial markets. In the past quarter, we continued development of energy storage solutions which we expect to bring to market toward the end of 2015.
Revenues of $86.4 million, up $13.1 million, or 17.9% sequentially, and an increase of $55.8 million or 182.7% from the same financial quarter in 2014.
Gross Margin was 27.4% up from 21.5% in the prior quarter and up from 20.4% in the third fiscal quarter of 2014. Adj Gross Margin was 27.6%, up from 21.6% in the prior quarter and 20.5% in the third fiscal quarter of 2014. This growth was driven mainly by cost reduction, reduced need for air shipments compared to ocean freight and economies of scale related to the increased production volumes.
Adj net income was $8.7 million, up over 50% from $4.1 million sequentially and an increase from a net loss of $5.0 million in the fiscal third quarter of 2014.
Adj earnings were 20 cents, up from 9 cents sequentially and from a loss of 12 cents the year before. I adjusted the previous quarters for the current amount of shares (44.15 million shares).
At March 31, 2015, cash, totaled $139 million, which includes proceeds from our IPO of $135 million, compared to $27 million on December 31, 2014. We had no debt.
Outlook for the Fourth Quarter
Revenues to be within the range of $92 million to $96 million;
Gross margins to be within the range of 26% to 28%.
June 2015 - Seeking Alpha Casual Analyst
SolarEdge announced blowout results
It has an architectural advantage and is likely to continue its run in the near term.
Revenue of $86.4M and adjusted EPS of $0.20 beat the street expectations by a wide margin.
Revenue guidance for the next quarter, at $92M-$96M, is also well above consensus estimates of $82.5M.
The results and guidance are fantastic by any measure but is this company worth investor consideration given that it is a parts supplier in the near commodity solar industry? What is different about SolarEdge? Is this yet another flash in the pan inverter company or does the business model have any sustainability?
To answer these questions, we take a comparative look at the tale of Enphase - yet another inverter company IPO from the years past that ran on hype and commanded a significant market capitalization without generating much in the form of shareholder wealth for the duration of its existence.
Enphase Energy was founded around the same time as SolarEdge, in 2006, to develop new generation of inverters to overcome the limitation of centralized solar inverters that were then in vogue. As the solar market started taking off, Enphase and SolarEdge chose two distinctly different paths to solving similar set of problems.
In technical terms, there is no outright winner and both SolarEdge and Enphase are duking it out in the marketing realm to highlight the advantages of their solutions.
In terms of simplicity, the Enphase solution is arguably superior to that of SolarEdge. However, when it comes to cost benefit analysis, it is clear that SolarEdge is winning the argument with Enphase.
SolarEdge solutions have been well received by cost conscious installers. SolarCity, in specific, was an early adopter and has embraced the lower cost SolarEdge platform.
The key advantage for SolarEdge is that Enphase with its current architecture and custom cabling cannot compete with the SolarEdge solution in terms of cost. Architecturally, there is very little Enphase can do to significantly reduce the cost of its solution in the near term. This dynamic leaves Enphase with the choice of reducing its prices/margins to keep its customers or losing the customer in a quest to maintain margins.
Unfortunately for Enphase investors, given the wafer thin margins in this business, there is not much in terms of margins that Enphase can give. Consequently, there have been several customer defections from Enphase to SolarEdge. One of the high profile defections, Vivint Solar has received considerable amount of press, created a buzz about SolarEdge, and has caused many Enphase installers to take a second look at the SolarEdge offerings.
At a fundamental architectural level, it is increasingly clear that Enphase system is attractive for small systems but as the system size grows, SolarEdge becomes a more attractive alternative.
SolarEdge architecture also has another critical advantage in terms of long term maintenance. The Company’s solution reduces the number and type of active components at the panel level by shifting the failure prone parts of the string inverter into a single centralized ground level location. This considerably increases the mean time between failures, for the inverters and makes larger systems much less maintenance intensive in the long term. When a failure occurs, the problem is lot more likely to be easily serviced at the ground level instead of having to climb on the rooftop, as would be the case with Enphase.
From an installer’s view point, SolarEdge architecture is likely to have a substantially lower maintenance expense in the later years than an Enphase system. This particular attribute is a big selling point to lease/PPA vendors like SolarCity and Vivint Solar who take on long term maintenance contracts extending to 20 or 30 years.
SolarEdge’s architecture also lends itself well to module level power electronics, MLPE, that are likely to be integrated into solar panels. The MLPE integrated modules, which are also referred to as active modules, offer many key advantages to module manufacturers. We expect most manufacturers targeting the residential space to offer MLPE integrated modules in the near future. SolarEdge’s advantages in this application indicate that it could be the biggest near term beneficiary of this trend. It has already won a module level design at Trina Solar and we expect that the Company will win several more such designs in the future. For this reason, we believe that SolarEdge is likely to experience explosive growth in this market segment.
SolarEdge’s cost, reliability, and integration advantage makes it likely that the Company is going to win big at the expense of Enphase in the residential space. But does this make SolarEdge a potential long term investment?
A common misperception in the investment community is that a company such as SolarEdge which established a new category of beneficial products would have considerable staying power and pricing power. But history demonstrates this to be not true. While SolarEdge’s products are highly functional and robust, the Company is subject to high level of commodity price pressure over time.
SolarEdge is likely to win the module integration battles today. However, the power in the MLPE enabled module industry is with the module manufacturer. A module manufacturer operating on a 15% margin will do everything in its power to cost reduce the MLPE enabled modules or usurp the functionality altogether.
Given the cost dynamics of these modules, over time, we believe that semiconductor companies will win most of the panel integration designs. A high volume mixed signal semiconductor will be able to deliver a microinverter or power optimizer component solution to module vendors that is far more attractive than the system level solutions that SolarEdge offers.
Considering these dynamics, in spite of SolarEdge’s initial leadership position, we find the Company’s long term prospects questionable. However, it takes time for new competition to arrive and establish itself. In the interim, SolarEdge will have its day under the sun.
Revenue/Earnings Estimates and Valuation:
Current analyst forecasts call for revenues of $82M and earnings of $0.09 in June quarter. Given the guidance in the earnings call, we believe this view is likely to change rapidly. Our model calls for an EPS of $0.25 for FQ4.
For FY2016 ending June 2016, analysts are expecting revenues of $390M and EPS of $0.82. Our model predicts revenues around $430M and an EPS of $1.20.
At a closing price of $26.39 on Thursday, the stock is trading at a forward valuation of 22 times our estimated 2016 EPS forecasts. The current $1B market cap is over 2 times 2016 revenues.
Our view: With strong competitive position, SolarEdge is likely to be stellar near term performer. The company’s growth is likely to be meteoric with the increased adoption of the Company’s solution in the residential and commercial space and with the growth in MLPE enabled modules.
The stock is not cheap by any means. However, the company has a great near term story, earnings momentum, storied associations with Tesla and SolarCity. In other words, it has all the ingredients necessary to make it the Wall Street darling-du-jour and give it a considerable stock price momentum. We expect rapid appreciation in stock price and consequently, the stock may be suitable for speculative and nimble growth oriented investors.
The key long term risks for the company are price/margin compression and loss of key customers. Given the risk profile and commodity nature of the business we do not believe this stock is worth the consideration for a long term buy-and-hold investors.
May 2015 – Notes from Inv Bus Daily Article (summarized)
The Israel-based SolarEdge which produces optimizers and inverters to turn solar energy into electricity, went public on March 26 with an offering price of 18. Its stock has climbed since to around 39.
Its debut earnings release as a public company helped fuel the surge. In early May, SolarEdge posted quarterly revenue of $86.4 million, up 18% from the prior quarter and more than 180% year over year. Its fiscal 2015 third-quarter non-GAAP profit of 20 cents a share burned past analysts’ views for 8 cents. For the current quarter, analysts forecast EPS of 22 cents, and 54 cents for the full fiscal year.
SolarEdge is a part of IBD’s Energy-Solar industry group. It has the group’s second highest rating
What Drives The Solar Industry
Analysts anticipate robust growth for SolarEdge during this calendar year and next in the U.S., in large part because both commercial developers and homeowners are trying to complete projects before a federal tax credit for solar energy expires at the close of 2016.
The Investment Tax Credit, or ITC, is a 30% credit on solar energy systems – think of solar panels on roofs – for both homes and businesses. It isn’t known if the tax credit will be extended, or reduced if it is extended, so many Americans looking toward long-term energy savings, particularly in sun-soaked and high cost of living states, are moving with haste to capitalize on the tax breaks
The forecast is for rapid growth this year for the PV (photovoltaic) inverter market in the U.S. PV inverters convert direct-current (DC) solar-panel output to alternating current (AC) suited to the power grid. PV installations in residential and small commercial projects – a SolarEdge sweet spot – are projected to grow more than 40% this year.
This represents a huge opportunity for inverter suppliers like SolarEdge. The greatest growth is anticipated in California, Arizona, Massachusetts, New Jersey and North Carolina.
While the solar market in the U.S. is likely to hit its peak for the current decade in 2016, owing to the tax credit expiration, energy-conscious homeowners and small-business owners are expected to continue to drive growth in PV inverters. He says that from 2017 onward this decade, residential and small commercial markets are predicted to grow 15% on average annually in the U.S.
About 75% of SolarEdge’s business is in the United States.
Gilligan says that in 2014, SolarEdge ranked among the top five PV inverter suppliers in the U.S., owing in large measure to a partnership with solar industry giant SolarCity.
He noted, however, that SolarEdge is “gaining market share rapidly” on the four companies ahead of it in the 2014 rankings.
SolarEdge did not respond to IBD’s interview requests. But following its earnings release, a Roth Capital analyst said in a research report that the company had told analysts that it expects the vast majority of its sales to continue to be in the U.S. and that it “expects to penetrate the majority of the top customers in the U.S.” over the course of 2015.
Teaming With Tesla
SolarEdge also this year announced a collaboration withTesla on its Tesla Powerwall in-home stationary battery , which can store the energy from solar panels for later use.
“Together, we are taking the first step towards widespread adoption of integrated solar energy generation and storage in the residential market,” Lior Handelsman, marketing and product vice president of SolarEdge, said in a May news release.
Tesla CEO Elon Musk said in the electric carmaker’s latest quarterly conference call, in early May, that response to the battery systems has been “overwhelming.” At the time, Tesla had taken 38,000 Powerwall pre-orders and 25,000 pre-orders for its larger-scale Powerpack, the latter mostly from utilities.
Jed Dorsheimer, an analyst at Canaccord Genuity, said in a May research report that “Energy storage has the potential to serve as an additional growth driver” for SolarEdge. “We are already starting to see this segment bear fruit, not yet on the top line but with increased visibility from Tesla Energy’s recent battery announcement.”
U.S. Global Investors’ Matousek notes that many solar energy stocks sank along with oil prices in 2014. Given that solar energy is an alternative to expensive fossil fuels, he says, it made sense for investors to anticipate that solar demand would slow as prices at the pump dropped and reduced near-term incentives to shop for lower energy alternatives.
But, he adds, oil prices will inevitably rebound. Already, he says, with the modest recovery this year in crude prices, investor attention has turned back to the solar realm, benefiting the likes of SolarEdge’s stock.