SolarEdge has produced a fantastic quarter validating our underlying belief the company is growing strongly and undervalued.
Earnings per share is up 25% YoY, revenue up 9% YoY and gross margin a very significant increase of 10% YoY. This produced a company record of quarterly revenue, earnings and gross margin.
Company management re-iterated its longterm objective of increasing gross margin from the current high of 34.6% to 37% over the next 12 months. New products are also expanding the company’s product range more into commercial solar projects, electric vehicles and, further in the long term, utility scale projects.
Revenue growth is being fuelled by strong international growth combined with market share gains from competitors. While R&D has been driving margin growth, by improving production and product efficiencies.
Our forward 12m earnings forecast is $2.00 / share, putting the company on a PE of 11.4 at todays close of $22.85.
In short; SEDG has earnings growth of 25%, a market leading product and $270m cash. Should be on a PE of 20-25 minimum with a price closer to $40. Re-iterate strong buy.
Q2 key financials:
- EPS $0.55 (+25%)
- Revenue $136 (+9%)
- Gross margin 34.6% (+10%)
- $274m in cash (25% of market cap)
- Revenue $155m - $165m
- Gross margin 33% - 35%
- (Implies EPS $0.65 - $0.70)
Key points from management:
- Lower production costs / unit
- Revenue growth primarily driven by Europe.
- Commercial growth more than residential (which is growing well)
- New larger capacity inverters opens up large commercial project opportunities
- Rapid EV charger
- HD-Wave available worldwide
- Strong $ benefit from Euro vs USD currency
- Targeting long term gross margins of 36-37%
- Inventory levels in channels are estimated to be lower now than in Q1