SolarEdge cut to Sell at Guggenheim on need for ‘fundamental reassessment’ in Europe

SolarEdge Technologies (NASDAQ:SEDG) -4.6% in Thursday’s trading as Guggenheim downgrades shares to Sell from Neutral with a $10 price target, while raising Enphase Energy (ENPH) to Neutral from Sell.

While Guggenheim’s Joseph Osha believes SolarEdge (SEDG) can maintain its competitive position in commercial markets as a result of buyer focus on quality and security, “the company still appears to have no answer for the continued aggressiveness of Chinese suppliers in European markets for residential inverters.”

An adequate response likely will require more than price-cutting, Osha says, seeing the need for a more fundamental reassessment of the company’s product lineup in Europe.

In the U.S., the analyst thinks both SolarEdge (SEDG) and Enphase (ENPH) likely will lose share to Tesla’s Powerwall 3 in the storage-attached segment of the market, and “investors may be underestimating how quickly the attach rate in the market could rise next year as prices continue to decline and the remaining California NEM 2.0 backlog (which has much lower storage attach rates) is worked off.”

With SolarEdge (SEDG) more exposed to the large-developer end of the market as a result of its relationship with Sunrun, Osha believes the competitive impact of Tesla’s progress likely will be greater.

The analyst also notes the remaining $350M repayment balance on SolarEdge’s (SEDG) 2020 convertible looming next year, which could see overall cash liquidity fall below $300M in next year’s Q3, “dangerously low… for an enterprise of SEDG’s size” and leaving little margin for error if the business recovers more slowly than management expects.