SolarEdge (SEDG) is establishing itself as one of the highest performing solar companies in the industry. SolarEdge recently reported strong Q2 results despite a pandemic-induced economic downturn. The company reported a revenue of $331.85 million and a GAAP EPS of $0.70, beating expectations by $12.3 million and $0.22, respectively.
Although SolarEdge is clearly being slowed by the coronavirus, the company is still running a relatively robust business. While SolarEdge’s revenue decreased significantly Q/Q as a result of the pandemic, it actually increased 2.1% Y/Y. SolarEdge has firmly established a leadership position in one of the most promising solar segments.
SolarEdge is climbing to new heights despite COVID-19.
SolarEdge had a particularly strong quarter in Europe. Europe accounted for $144 million in revenue, which actually represents a revenue increase of $22 million from last quarter. This revenue increase during the height of the pandemic showcases SolarEdge’s growing presence in markets outside the US. In fact, the company’s Europe’s solar revenue alone accounts for 46.5% of the company’s total revenue.
Europe’s ability to handle the coronavirus relatively well, at least compared to the US, has contributed to SolarEdge surprising success in this market. Moreover, the coronavirus has incentivized many European countries to focus more attention on renewables in order to bolster their economies. SolarEdge is clearly reaping the benefits of forward-looking European policies on this front.
SolarEdge and Enphase (ENPH) are dominating the solar MLPE industry. For a while, SolarEdge appeared to be edging out Enphase in terms of market dominance. However, Enphase has started to experience some serious momentum of its own. In fact, Enphase is now starting to seriously threaten SolarEdge’s dominance.
SolarEdge appears to be losing momentum to Enphase in the US residential solar market. The US residential solar market is incredibly important for MLPE companies given the sheer size of its total addressable market. With Enphase supplying some of the largest US residential solar companies like Sunrun (RUN) and SunPower (SPWR), it is not surprising to see Enphase gaining momentum in US residential solar.
Enphase’s connections to the largest US residential solar players could give the company even greater advantages than expected. Sunrun’s plans to acquire Vivint Solar could make Sunrun a long-term force in US residential solar. If this acquisition manages to grow Sunrun’s market share, Enphase will clearly benefit as a supplier.
Sunrun could potentially change the US residential solar landscape with an acquisition of Vivint Solar.
On the other hand, these large US residential solar players are plagued with a plethora issues. Their business models of selling long-term solar products could be particularly problematic given the relatively unproven nature of solar products over the long-term. Moreover, there is still a debate on whether or not larger residential solar companies will be able to remain competitive with local residential solar companies over the long-term. As such, Enphase’s reliance on larger customers could actually backfire.
SolarEdge is also more diversified than Enphase on many levels. SolarEdge has a more diversified product portfolio and geographical presence. Moreover, SolarEdge also has a strong presence in segments outside of residential like commercial. Even if SolarEdge ends up losing market share to Enphase in US residential solar, the company is still well-positioned on many other fronts.
Increasing competition could also be impacting SolarEdge’s margins. The company’s gross margins have consistently declined over the past few quarters. Although SolarEdge’s Q2 gross margin of 31% is still solid, it is clearly trending downward. While this could partly be attributed to the pandemic, investors should still be wary of this pattern moving forward.
SolarEdge’s gross margins have consistently declined over the past few quarters.
SolarEdge continues to reach new heights despite the coronavirus. The company is now more valuable than even the largest solar manufacturers. In fact, SolarEdge is now far more valuable than solar manufacturing giant First Solar (FSLR), which is something that would have seemed impossible just a few years ago.
Even at SolarEdge’s current valuation of $10.6 billion and forward P/E ratio of 55, the company still has more upside. SolarEdge has established itself as a clear front runner in an incredibly high growth industry. Although SolarEdge is facing more competition from Enphase and even companies like Generac (GNRC), the solar MLPE industry is growing fast enough for multiple players to thrive.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.