SolarEdge Technologies, Inc.

SEDG Details

SolarEdge Technologies, Inc. (NASDAQ: SEDG) is a company that designs, manufactures, and sells inverter systems that are optimized for direct current (DC) in solar photovoltaic installations. Inverters, power optimizers, a communication device that allows access to a cloud-based monitoring platform, and additional smart energy management solutions make up the company's inverter system. The company's direct customers comprise large solar installers, engineering, procurement, and construction businesses, while other solar installers buy indirectly from distributors and electrical equipment wholesalers.

Partnership for Efficient Power Distribution: Sunnova Energy International Inc. (Sunnova), a leading residential solar and storage service provider in the US, announced a partnership with SEDG on July 27, 2021, under which the companies will provide voltage support across Massachusetts and Rhode Island. Sunnova stated that in the last decade, the industry had built residential distributed energy assets of 838 MW and 58 MW in Massachusetts and Rhode Island, respectively (according to Wood Mackenzie). This partnership will ensure more efficient power delivery to consumers in the service area.

6MFY21 Results: SEDG reported a 16.05% rise in revenues to USD 885.55 million during 6MFY21 (ended June 30, 2021) compared to USD 763.07 million in 6MFY20. However, the company reported a slight decline of 4.74% in net income to USD 75.17 million during 6MFY21 compared to USD 78.92 million during 6MFY20. As of June 30, 2021, its balance sheet stood with cash and cash equivalents (including short-term bank deposits and marketable securities) of USD 683.36 million with a total debt of USD 645.75 million.

Key Risks: The company's largest customer, Consolidated Electrical Distributors Inc. (CED), accounted for 14.8% of its revenues, and its next five largest customers collectively accounted for 30.7% of revenues during FY20. Such excessive dependence on a few customers for business could hurt the company's financial health.

Further, SEDG manufactures a small portion of its products in Israel. However, it depends heavily on a small number of outside contract manufacturers to manufacture most of its products. Therefore, any change in its relationship or contractual terms with its contract manufacturers and changes in their capacity to meet their contractual responsibilities could negatively impact its financial situation and future cash flows.

Outlook: SEDG estimates revenues of USD 520 to USD 540 million in Q3FY21, with a non-GAAP gross margin of 32% to 34%. It also expects its revenue from the solar division to be in the range of USD 460 to USD 480 million, with a gross margin ranging between 35% and 37%.

Valuation Methodology: Price/Earnings per share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

SEDG Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: SEDG stock price has surged 73.42% in the past twelve months and is currently trading at the higher-band of the 52-weeks range of USD 162.60 to USD 377.00. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 268.22. Considering the significant rise in the stock price, we believe the current price adequately reflects the decent fundamentals. Hence, we recommend a "Sell" rating on the stock at the current price of USD 304.13, up 18.01% as of August 03, 2021, at 10:00 AM ET.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.   

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