Get the Latest Investment Ideas Delivered Straight to Your Inbox. Subscribe

TICKERS: ENPH

'Time to Take Profits' from Renewable Energy Product Developer
Research Report

Share on Stocktwits

Source:

A Raymond James report discussed the rationale behind this conclusion.

In a March 19 research note, analyst Pavel Molchanov reported that Raymond James downgraded its rating on Enphase Energy Inc. (ENPH:NASDAQ) to an Underperform from a Market Perform due to the company's current "all-time high valuation" in a "stock picker's space."

Enphase produces microinverters and batteries for photovoltaic (PV) systems. "The stock has become a crowded trade, as can be seen from its highest-ever revenue multiple, and earnings per share and cash flow per share valuations are at levels indicative of peak multiples on peak earnings," the analyst added.

Molchanov explained that Enphase's stock doubled since the start of 2019, compared to 82% growth in all of 2018. It has never traded at as high a multiple as it is now, 2.4x revenue, in its seven years as a publicly traded entity. In comparison, SolarEdge, an indirect comparable but the only relevant one, is trading at half the multiple of Enphase, at 1.2x forward revenue.

The last time Enphase came close to 2.4x, which was in mid-2014, it subsequently fell to less than 1x within a year's time. "We are not predicting anything quite so drastic, but it is important to underscore the unprecedentedly high valuation," clarified Molchanov.

The last time Enphase's gross margin grew 30%, a price war between the company and SolarEdge occurred, which had deleterious effects on the former, ultimately taking its gross margin down to 20%. The company did, however, subsequently turn around.

Molchanov noted a similar situation, but one less dramatic, could occur again. While Enphase's product is improved, competitors are active and Huawei's product could eventually enter the U.S. market. "Commoditization across the PV value chain is relentless," he indicated.

As such, Raymond James is wary that Enphase cannot sustain management's margin target over the medium term. The financial services firm models Enphase's gross margin for 2019 and 2020 in the low-30% range, as it was in Q3/18 and Q4/18, but "our bias would be to the downside, especially for 2020," noted Molchanov.

[NLINSERT]

Disclosure:
1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
2) The following company mentioned in this article is a billboard sponsor of Streetwise Reports: None. Click here for important disclosures about sponsor fees.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article until three business days after the publication of the interview or article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.

Disclosures from Raymond James, Enphase Energy Inc., March 19, 2019

ANALYST INFORMATION

Analysts Holdings and Compensation: Equity analysts and their staffs at Raymond James are compensated based on a salary and bonus system. Several factors enter into the bonus determination, including quality and performance of research product, the analyst's success in rating stocks versus an industry index, and support effectiveness to trading and the retail and institutional sales forces. Other factors may include but are not limited to: overall ratings from internal (other than investment banking) or external parties and the general productivity and revenue generated in covered stocks.

The analyst Pavel Molchanov, primarily responsible for the preparation of this research report, attests to the following: (1) that the views and opinions rendered in this research report reflect his or her personal views about the subject companies or issuers and (2) that no part of the research analyst’s compensation was, is, or will be directly or indirectly related to the specific recommendations or views in this research report. In addition, said analyst(s) has not received compensation from any subject company in the last 12 months.

RAYMOND JAMES RELATIONSHIP DISCLOSURES
Certain affiliates of the RJ Group expect to receive or intend to seek compensation for investment banking services from all companies under research coverage within the next three months.

Raymond James & Associates makes a market in shares of Enphase Energy, Inc.

Additional Risk and Disclosure information, as well as more information on the Raymond James rating system and suitability categories, is available here.





Want to read more about Alternative - Solar, Alternative - Cleantech and Alternative Energy investment ideas?
Get Our Streetwise Reports Newsletter Free and be the first to know!

A valid email address is required to subscribe