What Is SolarEdge’s Fair Value?

SEDG: SolarEdge Technologies logo
SEDG
SolarEdge Technologies

SolarEdge Technologies (NYSE: SEDG) is a global leader in smart energy, which builds, develops, and provides direct current (DC) optimized inverter systems for solar photovoltaic (PV) installations worldwide. SolarEdge’s DC-optimized inverter system boosts power generation for both residential and commercial uses and includes power optimizers, inverters, and cloud-based monitoring services. SEDG is one of the fastest-growing companies in the solar energy sector and has seen its stock rise by nearly 220% from $13 in early 2017 to $42 on September 8. The company reported a strong first half of 2018, with robust growth in both revenue and earnings on a comparable basis. SolarEdge’s revenue for the first half of 2018 came in at $437 million (+74% year-on-year), while adjusted earnings per share came in at $1.68 (compared to 90 cents in the first half of 2017). Despite this, the stock plunged nearly 20% in recent weeks largely due to modest Q3 guidance and amid fears of growing competition from Huawei entering the western market with residential solar solutions. With a nearly 43% share of the market, SolarEdge is a leading supplier of residential solar power optimizers and inverters, and has used this leverage in the U.S. market to expand globally. Despite the ongoing trade issues between the U.S. and China, we believe the company’s position in the U.S. and other key markets should drive solid results in the near and medium term. Below, we take a look at what to expect from SolarEdge in the second half of 2018.

We have created an interactive dashboard analysis Our Outlook For SolarEdge Technologies In FY 2018 to estimate the company’s valuation based on its expected near-term results. If you disagree with our forecast, you can make changes to these variables to arrive at your own price estimate for the stock.

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We currently estimate a valuation of $60 per share for SolarEdge Technologies, which is nearly 40% ahead of the market price, based on revenue projections of $893 million for FY 2018, a net margin of about 17%, and a P/E multiple of 18x, which is slightly more 2017 levels but still lower than the industry average.

We are upbeat about SEDG’s growth prospects for FY 2018, driven by the robust outlook of the global solar market. Further, this expected to fuel the robust growth of the global solar panel market, largely driven by increased demand for inverter systems for both residential and commercial uses. In addition, its latest offering, in collaboration with Panasonic in the U.S., should further boost its revenue and provide for decent near term growth opportunities. However, the recent import tariffs in the U.S. could stall the solar panel installations and slightly dampen the outlook for the company. Additionally, we believe SolarEdge will benefit from its presence in key markets such as India, Europe, Australia, and Japan, which will likely drive solar panel demand moving forward.

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