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SolarEdge (SEDG) Up 18.8% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for SolarEdge Technologies (SEDG). Shares have added about 18.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is SolarEdge due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

SolarEdge Q3 Sales Beat Estimates, Earnings Fall Y/Y

SolarEdge reported third-quarter adjusted earnings of 91 cents per share. The bottom line declined by 37.2% from the prior-year quarter’s earnings of $1.45 per share.

The Zacks Consensus Estimate for third-quarter earnings was pegged at $1.17 per share.

Barring one-time adjustments, the company posted GAAP earnings of 43 cents per share compared with 96 cents in the year-ago quarter.

Revenues

SolarEdge’s revenues of $836.7 million in the third quarter surpassed the Zacks Consensus Estimate of $826 million by 1.3%. The top line surged 59% from the year-ago quarter’s $526.4 million.

Revenues from the solar segment were $788.6 million, up 65% from $476.8 million in the prior-year quarter.

Operational Highlights

SolarEdge shipped a total of 2.7 gigawatts of inverters and 320.7 megawatt-hours of batteries in the reported quarter.

The adjusted gross margin contracted by 670 basis points from the prior-year gross margin of 34% to 27.3%.

Adjusted operating expenses went up 29% year over year to $108.3 million.

The adjusted operating income in the quarter totaled $120.2 million, up 26% from the year-ago quarter’s $95.2 million.

Financial Performance

SolarEdge had $678.3 million of cash and cash equivalents as of Sep 30, 2022, up from $530.1 million as of Dec 31, 2021.

The cash outflow from operating activities amounted to $80 million during the nine months ended Sep 30, 2022 against the cash inflow from operating activities of $124.6 million in the year-ago period.

Total long-term liabilities were $1,156.9 million as of Sep 30, 2022 compared with $1,065.7 million as of Dec 31, 2021.

Q4 Guidance

In the fourth quarter of 2022, SEDG expects revenues in the range of $855-$885 million. The Zacks Consensus Estimate for the same is pegged at $862.1 million, lower than the midpoint of the guided range.

Revenues from the solar segment in the fourth quarter are projected in the range of $810-$840 million.

While the company’s adjusted gross margin is estimated at 27-30%, the gross margin in the solar segment is anticipated at 28-31%.

The company expects the operating profit in the range of $115-$135 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

The consensus estimate has shifted -11.63% due to these changes.

VGM Scores

Currently, SolarEdge has a poor Growth Score of F, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise SolarEdge has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

Performance of an Industry Player

SolarEdge belongs to the Zacks Solar industry. Another stock from the same industry, Enphase Energy (ENPH), has gained 10.6% over the past month. More than a month has passed since the company reported results for the quarter ended September 2022.

Enphase Energy reported revenues of $634.71 million in the last reported quarter, representing a year-over-year change of +80.6%. EPS of $1.25 for the same period compares with $0.60 a year ago.

Enphase Energy is expected to post earnings of $1.30 per share for the current quarter, representing a year-over-year change of +78.1%. Over the last 30 days, the Zacks Consensus Estimate has changed +5%.

Enphase Energy has a Zacks Rank #2 (Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of A.

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