Enphase Energy Inc.

ENPH Details

Enphase Energy Inc. (NASDAQ: ENPH) is a global energy management technology company and is engaged in the supply of micro inverter-based solar-plus-storage systems.

FY20 Results Performance (For the Year Ended 31 December 2020)

Owing to an 11% rise in the shipping of microinverter unit volume, the company logged a 24.0% YoY increase in revenue to $774.4 million in FY20, compared to $624.3 million in the previous year. The company has sold around 6.8 million microinverter units in FY20 as compared to around 6.2 million microinverter units sold in FY19. However, it posted a 16.8% decline in net income to $134.0 million from $161.1 million in FY19.

Financial Snapshot (Source: Company Reports)

Q1FY21 Result Performance

The company has recorded a healthy performance in Q1FY21 with revenue growth of 46.8% YoY to $301.8 million supported by robust worldwide demand for the solar and storage systems. However, an increase in operating expenses by 71.2% YoY to $61.56 million lead to a decline in net profit by 54% YoY to $31.69 million.

Financial Highlights (Source: Company Reports)

Outlook

The company, on 1 April 2021, has completed the acquisition of the Solar Design Services business of DIN Engineering Services LLP. This acquisition will boost the capabilities of the digital platform. Meanwhile, the company has guided of achieving revenue in the range of $300.0 million to $320.0 million in Q2FY21 and GAAP gross margin is expected to stay between 37.0% to 40.0% and the non-GAAP gross margin to be between 38.0% to 41.0%, excluding stock-based compensation expenses.

Key Risks

The ongoing Covid-19 pandemic is adversely affecting the business performance and the demand for solar energy solutions. ENPH is also exposed to a concentration of credit risk with the major customers as one customer accounted for around 29% of total net revenues in FY20.

Valuation Methodology: EV/EBITDA Based Relative Valuation (Illustrative)

Stock Recommendation

The stock fell by ~35.3% in 3 months. It made a 52-week low and high of $37.81 and $229.04, respectively.

We have valued the stock using EV/EBITDA multiple-based illustrative relative valuation and have arrived at the target price of low double-digit (in % terms). We have assigned a slight premium to its peer average EV/EBITDA (NTM Trading multiple), considering the sustained momentum in strong demand for its solar and storage systems globally and its expansion to new geographies. It has recently expanded its Enphase Installer Network (EIN) in the Netherlands and Belgium. For the purposes of relative valuation, we have taken peers like Ambrella Inc, Monolithic Power Systems Inc, etc.

Considering the aforementioned factors, solid liquidity position with $1,489.0 million in cash and decent outlook, we give a “Buy” recommendation on the stock at the current market price of $126.9 per share, down by 0.74% on 5^th May 2021.

Note: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Disclaimer

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