It's a hot market for solar energy companies, with global electricity demand expected to double by 2030 as the industry goes through several major shifts.
SolarEdge Technologies, a leading supplier of components that convert sunlight into electricity, is well positioned to tap into that growth.
The Israel-based company says it is the largest manufacturer of inverters, which convert DC power from solar panels to AC power. The company has mostly focused on the residential market but is reaching deeper into the commercial field. It also is expanding its product portfolio into batteries and other areas.
Globally, solar photovoltaic installations will see double-digit growth this year, according to research firm IHS Markit. It says total investment in 2022 will be at least $170 billion.
"The energy market is going through a very significant shift," SolarEdge Chief Financial Officer Ronen Faier said at the company's annual analyst day on March 29.
That shift includes a growing demand worldwide for decarbonization. That means replacing fossil fuels with clean energy to slow the impact of global warming.
Reporting Greenhouse Gas Emissions
Governments worldwide are mandating more decarbonization. For example, in March, the U.S. Securities and Exchange Commission formally proposed new rules that would, for the first time, require businesses to report their greenhouse gas emissions, along with details of how climate change is affecting their businesses.
"This will push companies to invest much more in reducing their carbon footprint, and the easiest way to do that is through solar," Faier said. "Investors are pushing corporations to use much more solar. This is something that we see that is gathering a lot of momentum."
Solar energy has one of the lowest capital expenditure requirements and is the fastest energy source to install. In addition, companies are developing better ways to make and install solar energy technology. Also, electricity transmission is going longer distances, making it more widely available to consumers.
Solar energy generation rose 23% last year, while wind power generation increased 14%. Combined, they account for more than 10% of global electricity generation. That's according to the third annual Global Electricity Review by Ember, a climate and energy think tank. Taken together, solar and wind are now the fourth largest source of electricity in the world.
"We see that within the clean energy sources, solar energy is expected to take the lion's share by 2050, being at around 38% of the entire energy generation around the world," Faier said.
Big Jump In Residential Solar Energy
The company says it already has firm orders this year, in megawatt volume, that represent 60% of its residential shipments for all of 2021.
"In commercial, we are seeing a real shift in market momentum driven by the rising electricity prices across Europe and other regions, as well as the trend of corporations wishing to progress their ESG programs and offset their carbon emissions," Chief Executive Zvi Lando said during the analyst day gathering. ESG programs target environmental, social and governance issues.
In addition to building solar inverters designed to maximize power generation, SolarEdge makes other products. They include battery storage units, power optimizers, photovoltaic monitoring, software tools and electric vehicle chargers.
In February, the company reported fourth-quarter results that missed views on earnings but beat on revenue, as did its outlook.
Revenue jumped 54% to $552 million, beating the consensus estimate of $549.4 million. It reported adjusted earnings of $1.10 a share, below Wall Street's target of $1.31.
SolarEdge expects first-quarter revenue in the range of $615 million to $645 million. That's above analyst expectations of $578.6 million.
SolarEdge missed fourth-quarter earnings estimates due to several issues, Lando said.
Operational Supply-Chain Challenges
"In the current challenging operational and supply chain environment, expanding infrastructure and ramping production to meet the higher demand level is putting temporary pressure on our gross margins," Lando said on the company's quarterly earnings call with analysts.
He expects this situation to last until the middle of the year.
"We continue to like the SEDG strategy of leveraging the market position of its core inverter solution to enter tangential markets," UBS analyst Jon Windham said in a note to clients.
He has a neutral rating on SEDG stock and a price target of 310. That's up from his previous target of 290. SolarEdge stock currently trades near 305.
SolarEdge has multiple revenue drivers in the medium term, he wrote.
Other key players in the solar energy market include SunPower Enphase Energy, Daqo New Energy and First Solar.
Please follow Brian Deagon on Twitter at @IBD_BDeagon for more on tech stocks, analysis and financial markets.
