Shares of Enphase Energy (ENPH), the leading supplier of microinverter-based solar-plus-storage systems, are down about 17% in the pre-market session today. This notable drop in ENPH stock follows the company's disappointing quarterly results last night, with revenues and profits both coming in below analysts’ consensus expectations.
Q3 Miss Sparks Sell-Off in ENPH Stock
Enphase reported adjusted earnings per share (EPS) of $0.65, significantly lower than the $0.78 analysts had anticipated. Even more concerning, EPS dropped over 36% compared to the same quarter last year. Revenues also fell short, coming in at $380.9 million — down 31% year-over-year, and below the Street’s forecast of $393 million.
The company’s guidance for Q4 hasn’t helped to calm investors' nerves, either. Enphase projects revenue in the range of $360 million to $400 million, well under the $434 million Wall Street was expecting.
What’s Impacting Enphase’s Performance?
Several factors are weighing on Enphase’s financial performance. In Q3, the U.S. market accounted for 75% of the company’s revenue, with international sales making up the remaining 25%. On the positive side, U.S. revenue was up 43% compared to the previous quarter, driven by a 6% increase in product sell-through despite the bankruptcy of a large U.S. customer.
However, Europe was a different story. Revenue from the region fell 15% quarter-over-quarter, and overall sell-through plunged 34%. The business environment in Europe has been challenging due to falling power prices, slow economic growth, and weakened consumer confidence. These headwinds are expected to continue through Q4, potentially dragging on Enphase’s overall performance.
Stock Performance and Market Headwinds
Enphase stock fell over 50% in 2023. Even before today’s pre-market decline, the stock was down about 30% year-to-date. The drop has been driven by higher interest rates, which have a negative effect on residential solar demand, as many solar projects are financed. The company also reduced its manufacturing capacity earlier in the year, which weighed on the stock.
Additionally, higher inventories at distribution partners and weakening demand in Europe have further pressured Enphase’s performance.
What’s Next for Enphase Stock?
Despite the recent downturn, there are some silver linings for Enphase. The company reported a 13% increase in U.S. distributor sell-through in Q3, indicating that domestic demand may be stabilizing. Looking forward, Enphase is optimistic about several factors driving future growth: potential lower interest rates, ITC (Investment Tax Credit) incentives, and rising power prices in 2025.
Enphase is also preparing to launch new products, including higher domestic content microinverters designed to qualify for additional ITC benefits. The company is ramping up U.S. production of its IQ8 series of microinverters and has solidified its supply chain for battery production through 2025.
Enphase is also expanding globally. The company’s development pipeline is packed with innovative products, including its three-phase battery, IQ Balcony Solar system, and the IQ EV charger for Europe. These launches are expected to increase its total addressable market by $4 billion. Additionally, its upcoming fourth-generation battery system, featuring the IQ meter collar and enhanced combiner, promises to reduce installation costs and boost demand for backup power solutions.
While these growth initiatives could set Enphase up for a rebound, challenges remain. Increased competition and ongoing weakness in Europe could limit the stock's upside potential.
Analysts’ Take on Enphase
Wall Street remains cautiously optimistic about Enphase’s long-term prospects, with a “Moderate Buy” consensus rating. The average price target of $123.22 suggests decent upside potential from current levels. However, with the weaker-than-expected Q3 results and a disappointing Q4 outlook, analysts may adjust their targets lower in the near term.
The Bottom Line
For investors considering Enphase stock, the company’s growth prospects in the U.S. are promising, but the risks tied to Europe and competitive pressures shouldn’t be overlooked.
On the date of publication, Amit Singh did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
