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Should You Buy or Sell Enphase Energy (ENPH) Before Q2 Earnings?
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Enphase Energy (ENPH - Free Report) is scheduled to release second-quarter 2024 results on Jul 23, before the opening bell.
The Zacks Consensus Estimate for revenues is pegged at $309.2 million, implying a 56.5% decline from the year-ago quarter's reported figure. The consensus mark for second-quarter earnings is pegged at 49 cents per share, suggesting a 66.7% decline from $1.47 reported in the prior-year quarter. The bottom-line estimate has dropped 5.8% in the past 60 days.
Image Source: Zacks Investment Research
Also, Enphase Energy does not have an impressive earnings surprise history. Its earnings missed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 0.23%.
Image Source: Zacks Investment Research
Earnings Whispers
Our proven model does not conclusively predict an earnings beat for ENPH this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is not the case here. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
Enphase Energy has a Zacks Rank #4 (Sell) and an Earnings ESP of -2.86%.
ENPH has been witnessing a broad-based slowdown in demand for its products in the United States and Europe, since the second half of 2023. This, in turn, resulted in oversupply and, thereby, elevated inventory with its distributors and installers. Consequently, the company’s shipment of microinverters and batteries declined on a year-over-year basis, thereby adversely impacting its top-line performance.
Although the driving factor behind this demand slowdown is different for these two regions of the world, this trend is expected to have once again hurt ENPH’s revenues in the second quarter, as discussed below:
Projections for the United States
In the United States, demand for Enphase Energy’s products suffered due to high interest rates and the impact of the transition from Net Energy Metering 2.0 (“NEM 2.0”) to Net Energy Metering 3.0 (“NEM 3.0”) in California.
Since interest rates in the U.S. economy have still not being reduced and the state of California is still undergoing the NEM transition, overall sell-through of ENPH’s microinverters and batteries in the United States might have declined in the second quarter from the year-ago quarter’s levels. However, the non-California states are expected to show some favorable demand trends.
This must have hurt ENPH’s revenues from the United States. The Zacks Consensus Estimate for revenues from the United States is pegged at $167.8 million, reflecting a deterioration of 60.1% from the prior-year quarter’s reported actuals.
Expectations From the International Market
The company witnessed a demand slowdown for its products across Europe after the initial surge of sales related to the onset of the armed conflict in Ukraine in 2022, and overall channel inventory correction.
Although some European nations, particularly the Netherlands, France and Germany, are expected to have reflected solid sales volume, the aforementioned unfavorable trends are likely to have continued to some extent, thereby adversely impacting ENPH’s overall revenues from Europe. In addition, uncertainty related to solar export penalties in some parts of Europe still remains a headwind.
Other nations in the international market, such as Australia, Mexico and India, are expected to have reflected the benefits of solid demand trends. However, since Europe constitutes a major portion of ENPH’s revenues from the international market, dismal top-line performance from the former can be expected to have hurt the company’s overall revenues.
The Zacks Consensus Estimate for ENPH’s revenues from the international market is pegged at $143 million, implying a plunge of 51.3% from the prior year-quarter’s reported actuals.
Impact on Earnings
Enphase Energy started manufacturing its IQ8P Microinverters at its U.S. facilities in the second quarter, which is expected to have reduced its operating expenses. This, in turn, might have favorably contributed to the company’s overall bottom-line performance.
However, a dismal top-line performance must have dampened its earnings. Also, the company is projected to have incurred notable restructuring and asset impairment charges in relation to its 2023 restructuring plan, which, in turn, might have weighed down on its quarterly earnings.
Price Performance & Valuation
Enphase Energy’s shares have exhibited a downward trend, losing a notable percentage over the year-to-date period. Specifically, the stock plunged 20.2% year to date, underperforming the Zacks solar industry’s decline of 18.4%.
YTD Performance
Image Source: Zacks Investment Research
As evident from the image, other notable stocks from the same industry have also fell year to date and lagged the industry’s performance. Shares of Emeren Group (SOL - Free Report) , Canadian Solar (CSIQ - Free Report) and SolarEdge Technologies (SEDG - Free Report) lost 33%, 39.8% and 72.6%, respectively, year to date .
From a valuation perspective, ENPH is trading at a premium when compared to its industry. Currently, ENPH is trading at 27.60X forward 12 months earnings, which is higher than the industry’s forward earnings multiple of 21.19X.
Price-to-Earnings (forward 12 Months)
Image Source: Zacks Investment Research
Investment Thesis
Although the solar installation trend worldwide has been impressive in recent times, the prospect of Enphase Energy at this moment does not seem to be very optimistic before the second-quarter results. As the company’s priority for the time being remains to normalize its inventory channel, ENPH had earlier announced its plan to undership its products during the quarter. This, in turn, must have adversely impacted its operating results.
While the company remains a major supplier of microinverters and batteries across the global solar market, its near-term solid solvency position does not seem to have been sufficient to mitigate its leverage, as evident from its elevated long-term debt-to-capital ratio.
Image Source: Zacks Investment Research
Buy or Sell?
With Enphase Energy trading at a premium compared to its industry, a prudent investor should refrain from buying the stock before Tuesday. Investors have already been losing confidence in this stock, as evident from its year-to-date price performance. Its second-quarter results are not expected to make any major upturn, considering the downward revision in its earnings estimates as well as a negative Earnings ESP.
Image: Bigstock
Should You Buy or Sell Enphase Energy (ENPH) Before Q2 Earnings?
Enphase Energy (ENPH - Free Report) is scheduled to release second-quarter 2024 results on Jul 23, before the opening bell.
The Zacks Consensus Estimate for revenues is pegged at $309.2 million, implying a 56.5% decline from the year-ago quarter's reported figure. The consensus mark for second-quarter earnings is pegged at 49 cents per share, suggesting a 66.7% decline from $1.47 reported in the prior-year quarter. The bottom-line estimate has dropped 5.8% in the past 60 days.
Also, Enphase Energy does not have an impressive earnings surprise history. Its earnings missed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 0.23%.
Earnings Whispers
Our proven model does not conclusively predict an earnings beat for ENPH this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is not the case here. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
Enphase Energy has a Zacks Rank #4 (Sell) and an Earnings ESP of -2.86%.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Key Factors to Consider
ENPH has been witnessing a broad-based slowdown in demand for its products in the United States and Europe, since the second half of 2023. This, in turn, resulted in oversupply and, thereby, elevated inventory with its distributors and installers. Consequently, the company’s shipment of microinverters and batteries declined on a year-over-year basis, thereby adversely impacting its top-line performance.
Although the driving factor behind this demand slowdown is different for these two regions of the world, this trend is expected to have once again hurt ENPH’s revenues in the second quarter, as discussed below:
Projections for the United States
In the United States, demand for Enphase Energy’s products suffered due to high interest rates and the impact of the transition from Net Energy Metering 2.0 (“NEM 2.0”) to Net Energy Metering 3.0 (“NEM 3.0”) in California.
Since interest rates in the U.S. economy have still not being reduced and the state of California is still undergoing the NEM transition, overall sell-through of ENPH’s microinverters and batteries in the United States might have declined in the second quarter from the year-ago quarter’s levels. However, the non-California states are expected to show some favorable demand trends.
This must have hurt ENPH’s revenues from the United States. The Zacks Consensus Estimate for revenues from the United States is pegged at $167.8 million, reflecting a deterioration of 60.1% from the prior-year quarter’s reported actuals.
Expectations From the International Market
The company witnessed a demand slowdown for its products across Europe after the initial surge of sales related to the onset of the armed conflict in Ukraine in 2022, and overall channel inventory correction.
Although some European nations, particularly the Netherlands, France and Germany, are expected to have reflected solid sales volume, the aforementioned unfavorable trends are likely to have continued to some extent, thereby adversely impacting ENPH’s overall revenues from Europe. In addition, uncertainty related to solar export penalties in some parts of Europe still remains a headwind.
Other nations in the international market, such as Australia, Mexico and India, are expected to have reflected the benefits of solid demand trends. However, since Europe constitutes a major portion of ENPH’s revenues from the international market, dismal top-line performance from the former can be expected to have hurt the company’s overall revenues.
The Zacks Consensus Estimate for ENPH’s revenues from the international market is pegged at $143 million, implying a plunge of 51.3% from the prior year-quarter’s reported actuals.
Impact on Earnings
Enphase Energy started manufacturing its IQ8P Microinverters at its U.S. facilities in the second quarter, which is expected to have reduced its operating expenses. This, in turn, might have favorably contributed to the company’s overall bottom-line performance.
However, a dismal top-line performance must have dampened its earnings. Also, the company is projected to have incurred notable restructuring and asset impairment charges in relation to its 2023 restructuring plan, which, in turn, might have weighed down on its quarterly earnings.
Price Performance & Valuation
Enphase Energy’s shares have exhibited a downward trend, losing a notable percentage over the year-to-date period. Specifically, the stock plunged 20.2% year to date, underperforming the Zacks solar industry’s decline of 18.4%.
YTD Performance
As evident from the image, other notable stocks from the same industry have also fell year to date and lagged the industry’s performance. Shares of Emeren Group (SOL - Free Report) , Canadian Solar (CSIQ - Free Report) and SolarEdge Technologies (SEDG - Free Report) lost 33%, 39.8% and 72.6%, respectively, year to date .
From a valuation perspective, ENPH is trading at a premium when compared to its industry. Currently, ENPH is trading at 27.60X forward 12 months earnings, which is higher than the industry’s forward earnings multiple of 21.19X.
Price-to-Earnings (forward 12 Months)
Investment Thesis
Although the solar installation trend worldwide has been impressive in recent times, the prospect of Enphase Energy at this moment does not seem to be very optimistic before the second-quarter results. As the company’s priority for the time being remains to normalize its inventory channel, ENPH had earlier announced its plan to undership its products during the quarter. This, in turn, must have adversely impacted its operating results.
While the company remains a major supplier of microinverters and batteries across the global solar market, its near-term solid solvency position does not seem to have been sufficient to mitigate its leverage, as evident from its elevated long-term debt-to-capital ratio.
Buy or Sell?
With Enphase Energy trading at a premium compared to its industry, a prudent investor should refrain from buying the stock before Tuesday. Investors have already been losing confidence in this stock, as evident from its year-to-date price performance. Its second-quarter results are not expected to make any major upturn, considering the downward revision in its earnings estimates as well as a negative Earnings ESP.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.