| Sergei Vaschonok, Senior Analyst at Oppenheimer Israel Investment Bank
Solaredge (NASDAQ 🙂 released strong, accelerating growth to 62%, and provided a forecast above expectations for next quarter’s revenue. At the same time, despite the increase in revenue turnover, the downward trend in gross and operating profit rates continued, due to a sustained increase in supply chain related costs, including shipping costs, tariffs, labor costs, along with relatively low profitability of new products, mainly batteries.
The state of demand in the solar energy market remains strong, especially in Europe, which is an important target market for Solaredge, especially in the face of geopolitical escalation and a jump in energy prices in the European market.
We at Oppenheimer Investment Bank are encouraged by the progress in Solaredge’s growth, but continue to rate the stock on the Perform recommendation, due to the pressures on gross profitability that are expected to remain well into the near future.
Solaredge Stock Performance
In the first quarter of 2022, Solaredge posted revenue of $ 655 million, particularly high growth of 62%, above the $ 635 million consensus and above the upper end of the company forecast. In contrast, the non-GAAP gross profit margin continued to decline to 28.4% (27.3% on a GAAP basis), at the lower end of the company forecast, while net income was lower than expected, $ 1.20 per share on a non-GAAP basis and $ 0.60 earnings On a GAAP basis, compared to a consensus of $ 1.31 and $ 0.75 respectively.
Revenue from solar operations for the quarter totaled $ 608 million, above the upper limit of the company’s forecast, when the company provided products for generating electricity with a total volume of 2.13 gigawatts. Of solar activity, U.S. revenue was $ 265 million, a quarterly increase of 3%, while revenue from Europe jumped 42.5% from the previous quarter, despite seasonality, due to an acceleration in solar investment programs in the region, which should continue to gain momentum The war in Ukraine and sanctions on gas purchases from Russia However, the increase in Solaredge’s share of activity in Europe is hampering its gross profit margins.
SolarDage has doubled its battery sales rate, with a production capacity of 100 megawatts (compared to 42 megawatts in the previous quarter), and expects further doubling in the second quarter of 2022, to a level of 200 megawatts. The company orders most of the batteries from Samsung (KS :), with the independent battery manufacturing plant Sela2 (formerly KOKAM operating in Korea) expected to start in early 2023. It is important to note that the battery operation is a significant growth engine for Solaredge, but is characterized by low gross profit Thus potentially hampering the company’s future gross profitability.
Solaredge’s management expects revenue of $ 710-740 million in the second quarter of 2022, above expectations of $ 687 million, including revenue of $ 660-690 million from the solar field. The gross profit margin is expected to fall to a range of 26% -29% in total activity, compared to the expectation of 29.4%, and to a range of 28% -31% in cellular activity.
In line with the company’s forecast, we are updating our forecasts, and expect revenue of $ 2.99 billion with GAAP earnings of $ 3.89 per share for the current year, and earnings of $ 3.67 billion with GAAP earnings of $ 5.37 per share per 2023.
The SEDG share is ranked on the recommendation of Perform in Oppenheimer’s research department, given the expected pressure on the gross profit margin, but is among the “Israeliist” list of recommendations of the Oppenheimer Israel research department, due to the high growth, accompanied by cash flow, market leadership and a strong balance sheet.
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