The clean energy industry has enjoyed investor optimism over the past year. Rising demand globally as economies gradually transition toward carbon neutrality proved to be a significant tailwind to the sector. Governments worldwide have pledged to reduce carbon emissions — the United Kingdom, for instance, aims to eliminate carbon emissions by 2050 and China plans to become carbon neutral by 2060. Guided by the forthcoming Biden administration, the United States is expected to seek carbon neutrality by 2035.
These factors have helped the clean energy industry to significantly outperform the broader market. The First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN) has gained 181.5% over the past year. In comparison, the tech-heavy Nasdaq composite has returned 43.9%.
As the global economy recovers from the COVID-19 pandemic, a long list of countries is expected to invest heavily in clean energy to begin a systematic transformation across industrial sectors. Companies such as Enphase Energy, Inc. (ENPH) and SolarEdge Technologies, Inc. (SEDG) have already undertaken strategic expansion plans to penetrate the international markets and we think they are well-positioned to gain in 2021.
Enphase Energy, Inc. (ENPH)
ENPH designs and sells semiconductor-based microinverter systems for the solar photovoltaic industry. The company designs each solar product using four main components - Enphase microinverter, AC battery, Envoy Gateway and Enlighten cloud-based software. Its supply chain comprises wholesale and retail distributors, original equipment manufacturers, and Enphase online stores. The company is scheduled to be listed in the S&P 500 index in January 2021.
On December 14, ENPH launched Enphase Installer network (EIN) in Australia. It allows third-party distributors that sell ENPH products access to advanced digital networking benefits. ENPH’s market reach should increase significantly through this consolidated supply chain, making this Fremont, Calif.-based company a global leader in the solar industry.
Earlier this month, the company invested in Upstart Power, which designs fuel cell engines for off-grid applications. The move allows ENPH to enter the fuel cell industry, thereby expanding its clean-energy product market.
On October 12, ENPH announced a partnership with Natura Living to develop commercial solar projects for PepsiCo Thailand. Under the agreement, Natura Living has installed a 60kW solar array with Enphase IQ 7 inverters in PepsiCo’s building in Thailand. ENPH has also partnered with DMEGC Solar Energy in Europe and MSpectrum in Philippines to expand its sales in those respective regions.
ENPH’s revenue increased 42.2% sequentially to $178.50 million in the third quarter ended September 30, 2020. Its operating income has risen 53.5% year-over-year to $51.76 million. Its net income has increased 26.6% to $39.36 million, while EPS grew 24% to $0.31. The company reported a record non-GAAP gross margin of 41% for this period.
Analysts expect ENPH’s EPS to rise 45.7% next year, and at a rate of 36.6% per annum over the next five years. The company has an impressive earnings surprise history as well: it has beaten the Street EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $1.24 billion for the next year indicates a 62.3% improvement year-over-year.
ENPH has gained more than 700% since hitting its 52-week low of $21.49 in March. The stock hit its 52-week high of $189.41 on December 28.
How does ENPH stack up in the POWR Ratings?
A for Trade Grade
B for Buy & Hold Grade
B for Peer Grade
B for Overall POWR Rating.
The stock is also ranked #5 of 19 stocks in the Solar industry.
SolarEdge Technologies, Inc. (SEDG)
Headquartered in Israel, SEDG manufactures and sells photovoltaic DC current optimized inverter systems globally. Its product lineup includes power optimizers, inverters, monitoring software, and solutions. The company also provides after-sales and technical support.
SEDG raised $550 million through senior notes offering in September, which is expected to fund its business operations and expansion plans. The company launched a new energy hub inverter with prism technology in June, which can charge smart energy devices up to 200A.
SEDG’s revenues rose 2% sequentially to $338.10 million in the third quarter ended September 30, 2020. This can be attributed to a slight increase in solar business revenues to $312.50 million. Its non-GAAP gross margin increased 110 basis points sequentially to 33.5%, while non-GAAP operating income improved 7% from the prior quarter to $50 million. Its non-GAAP EPS grew 24.7% sequentially to $1.21.
Analysts expect SEDG’s EPS to rise 15.4% next year, and at a rate of 20% per annum over the next five years. The company has an impressive earnings surprise history as well; it beat the Street EPS estimates in three of the trailing four quarters. A consensus revenue estimate of $1.74 billion for fiscal 2021 represents a 19.6% improvement year-over-year.
SEDG gained more than 400% to hit its 52-week high of $335.80 this month since hitting its 52-week low of $67.02 in March.
It is no surprise then that SEDG is rated “Strong Buy” in our POWR Ratings system, with an “A” for Trade Grade and Buy & Hold Grade, and a “B” for Peer Grade. It is currently ranked #1 in the same industry.
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SEDG shares were trading at $317.03 per share on Thursday morning, down $2.07 (-0.65%). Year-to-date, SEDG has gained 233.40%, versus a 17.55% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.
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