SolarEdge slumps further on plans to raise $300m bond

Israeli Solar Energy Company SolarEdge technologies (Nasdaq: SEDG) has lost more than 90% of its value since November 2021, when it had a market cap of more than $20 billion and was Israel’s most valuable company on Wall Street. The company’s share price fell another 16% at the open of trading today, giving a market value of $1.58 billion, after raising $300 million in convertible notes, with an option to raise an additional $45 million.

SolarEdge, led by CEO Zvi Landau, develops and markets solutions for the solar industry including inverters, optimizers, batteries and communications devices for monitoring solar energy systems. These systems are designed to maximize energy production from the sun and reduce electricity production costs.

The company was founded in 2006 by the late Jay Sela and held its initial public offering on the Nasdaq in 2015 at a company valuation of $685 million. In 2019, Lando, previously Vice President of Sales, took over his position following the sudden death of Silla. The company went from strength to strength and when its stock price reached its peak at the end of 2021, it joined the S&P 500 index.

The upward trend changed sharply during the supply chain problems in 2023 after Covid. Last August, SolarEdge surprised the market with a lower-than-expected Q3 outlook, and the stock price plummeted. In October, a profit warning again pushed the share price lower, and the market realized that this was more than just a slowdown in growth but also a decline in revenue.

SolarEdge explained at the time that it had experienced significant and unexpected cancellations and delays in its order backlog, due to high levels of accumulated inventory at distributors. Distributors stockpiled during peak demand, due to supply chain difficulties and the desire to deliver products on time. Later, accumulated inventory and slow installation rate reduced new orders, which hurt the company’s results. At the end of 2023, Landau told Globes that stabilizing electricity prices and rising interest rates had led to a decline in investment in solar energy, although demand remained steady.

The market was not understanding and the stock price continued to decline. In 2023, its stock price returned weaker than any other stock in the S&P 500 and was relegated to the S&P Midcap 400.

At the beginning of 2023, when the trend was positive, analysts expected the company to cross the $1 billion mark in quarterly revenue. But recent quarters have been noticeably weaker ($316 million in Q4 2023 and $204 million in Q1 2024, with Q2 expected to improve to $250-280 million). This is in addition to reporting losses. Quarterly revenue is expected to eventually stabilize at around $600-700 million, with SolarEdge needing to adjust its cost structure. At the beginning of 2024, the company announced the layoff of 900 employees, including 550 in Israel – most of them at the company’s headquarters in Herzliya and some at the production plant in Tziporit near Nazareth. Before the layoffs, the company had 5,633 employees, including 3,160 in Israel.

Future: New products, acquisitions and doubling current target price

SolarEdge continues as if it were business as usual. The company recently announced the launch of new products, including a product designed for the domestic market in Europe and a solar and storage solution. Two months ago, SolarEdge made a small acquisition of Israeli startup Wevo, which specializes in optimizing electric vehicle charging and managing electric vehicle charging points in buildings and parking lots. SolarEdge paid $13.3 million for the balance of shares in the company, after previously investing in it. Despite the reduction in its cash and investments, SolarEdge still has approximately $950 million in cash (as of the end of the first quarter), compared to long-term debt of $628 million to holders of convertible notes.

According to the Wall Street Journal, most analysts covering SolarEdge today are “sitting on the fence.” Of the 33 analysts, 25 have neutral (Hold) recommendations, while only three have negative recommendations (“Underperform” or “Sell”) while five have positive recommendations (“Buy” or “Outperform”).

The recent sharp decline in the share price means that the average price target for SolarEdge stock is much higher than the price on the Nasdaq – $64.4 on average, more than double the current price of about $28.

Today, analysts expect the company to put the inventory issue behind it, but wonder when that will happen. Oppenheimer recently predicted that the problem will persist throughout 2024, while at the same time SolarEdge will maintain market share in Europe, its main market.

The prospect of lower interest rates in key markets in the future may also improve sentiment towards the stock, because solar installations are often financed through loans, and when interest rates are low, it is cheaper to install, so demand may increase.

Published by Globes, Israel Business News – en.globes.co.il – on June 25, 2024.

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