SolarEdge Technologies (NASDAQ:$SEDG), founded in 2006, is a leading manufacturer of solar all-in-one inverters, power optimizers, and energy storage solutions. It provides intelligent inverter solutions that efficiently manage solar power generation, storage, and consumption.
The Israel-based company reported disappointing Q4 2023 financial results and guidance that sent its stock tumbling over 20% in extended trading on February 20, 2024. SolarEdge has been negatively impacted by weakening demand and excess inventory that will take months to work through.
Financial Results Impacted by Market Headwinds
On February 20, 2024, SolarEdge announced Q4 2023 revenue of $316 million, a significant drop from $890 million in the same period last year. It recorded an operating loss of $237.6 million compared to an operating income of $79 million a year ago. Inventory has piled up rapidly for the company. Its Q4 inventory level was $1.4 billion, up from $1.2 billion in its last quarter.
The company’s weak results and outlook stem from slowing demand and excess inventory levels that built up due to an abrupt drop-off in orders.
“As reflected in our fourth quarter results and in the first quarter guidance released today, we continue to face challenges from general market dynamics as well as the inventory levels of our products in the channels due to the abrupt slowdown in demand in the second half of 2023,” said CEO Zvi Lando.
First Quarter Guidance Disappoints
Compounding worries about SolarEdge’s weak fourth-quarter results, the company’s first-quarter revenue guidance fell well short of Wall Street’s expectations. SolarEdge forecasts total company revenue for the first quarter to be $175 million to $215 million compared to consensus analysts’ estimates of over $400 million. It projected a consolidated non-GAAP gross margin ranging from -3% to +1% in the seasonally weaker first quarter.
Inventories Expected to Take Months to Normalize
On SolarEdge’s earnings call, management indicated that sell-through demand undershot its shipments by about $200 million in the fourth quarter. The company now projects sell-through demand to reach a run rate of $600 million to $650 million per quarter in the second half of 2024. In the meantime, the gap between sell-through demand and shipments is expected to narrow in each successive quarter this year.
Overall, management believes it will take until the end of 2024 before inventory levels fully normalize in SolarEdge’s sales channels. The excess inventory situation appears most acute in Europe, where demand slowed considerably more than normal seasonal patterns in the fourth quarter. CFO Ronen Faier said European sell-through demand for SolarEdge’s residential products dropped about 35% sequentially last quarter.
A more typical fourth-quarter sequential decline would be 10-15%. In the U.S., SolarEdge’s residential sell-through demand fell a more moderate 8% sequentially last quarter. However, with U.S. interest rates expected to remain elevated, limited improvement is projected until rates move significantly lower.
Cost Reduction Measures Implemented
SolarEdge has taken the initiative to cut costs to match this year’s lower shipment volumes by enforcing cost-saving measures. Early this year, it announced a 16% workforce cut. The company is also taking other measures, including facility closures and exiting certain non-core business lines. For instance, it has exited its arrangement with Stellantis to supply electric vehicle components.
The management expects a decrease in operating costs by about 11% from the quarter, where it reported $112 million, to the expected range of $112-117 million once all the cost reductions are fully implemented. However, SolarEdge will maintain R&D and new products to cater to future growth when the industry improves.
SolarEdge (SEDG) Stock Performance
The company’s share price has declined heavily after its latest earnings report. The stock dropped over 10% on February 20, 2024, to $74.28, or $10.14 less than the previous day’s closing price. This sell-off was triggered by SolarEdge’s earnings miss, and dismal Q124 guidance. .
SolarEdge faces weak demand, inventory surplus, and other adverse factors that have created undesirable sentiment among stockholders. Before the results, the stock was floating near its 52-week low and the short-term outlook will be grim. SolarEdge may need to show tangible results on cutting inventory by lowering prices to shift investor sentiment.
Should You Buy SolarEdge Stock?
Given a 60% decline in SolarEdge stock in the last twelve months, value-seeking investors might consider buying. At the same time, great caution is recommended. Although the company is a market leader in solar inverters where it retains an innovative edge, the risks to its near-term term revenues are high. Sluggish demand, an overhang of product inventories, and slim margins are likely to weigh on the stock price in the short term.
As management works towards the immediate cost restructuring, most analysts have lowered their price targets. As long as the underlying economic conditions have not stabilized and sustainable momentum is not yet built, SolarEdge is probably in a wait-and-see situation.
Click Here for Updates on SolarEdge – It’s FREE to Sign Up for Text Message Notifications!
Disclaimer: This website provides information about cryptocurrency and stock market investments. This website does not provide investment advice and should not be used as a replacement for investment advice from a qualified professional. This website is for educational and informational purposes only. The owner of this website is not a registered investment advisor and does not offer investment advice. You, the reader / viewer, bear responsibility for your own investment decisions and should seek the advice of a qualified securities professional before making any investment.