The solar energy industry is expanding and setting the stage for a boom in related markets like the solar microinverter market. Global energy technology company Enphase Energy (ENPH) has developed a semiconductor-based microinverter, which converts energy at the individual solar module level. Its fully integrated solar-plus-storage solutions also contribute generously to the company’s growth. Notably, Enphase carries significant clout in the solar energy market.
The company recently delivered solid second-quarter 2021 results on the back of strong demand for its microinverter systems across all regions. Since the earnings release, the share price of Enphase rallied 5% to close at $181.42 on Wednesday. (See Enphase Dividend Date and History on TipRanks)
The strong quarterly performance prompted Needham analyst Vikram Bagri to reiterate a Buy rating on the stock with a price target of $195, implying a 7.5% upside potential to current levels.
He said, “We believe that strong growth lies ahead with the rollout of new products, the launch of additional storage features, international expansion and growing manufacturing capacity.”
He added, “We reiterate our Buy rating as we focus on the company’s earnings power looking out to 2025 given what we believe will be an increasingly supportive government policy environment for renewable energy and other market forces that will drive accelerating adoption of solar power in the residential and commercial markets over the next several years.”
Bagri was also encouraged by Enphase’s quarterly shipment of 2.36 million microinverters, despite persistent supply constraints. In the earnings call, management noted that demand outpaced supply, and expects supply to improve in the third quarter with the addition of more sources.
Improving supply constraints was another factor that the analyst considered. The shortages of AC FET drivers narrowed with the addition of a new supplier in the second quarter, and is expected to improve further as another supplier will be added by the end of the third quarter.
Bagri believes that a robust product pipeline in residential storage and small commercial applications, along with its efforts to expand foothold in international markets, will expand Enphase’ serviceable addressable market and help drive growth. The company is also expected to gain more share in its core U.S. residential solar market. A low-leveraged balance sheet is also enabling Enphase to pursue strategic acquisitions, which, the analyst believes, will enhance its market position.
Bagri noted, “We look for the shares to move higher, supported by more consistent financial results, a promising product pipeline, and improved profitability. In the short run, component constraints have put a damper on growth. We view this as nothing more than a pause in the Enphase growth story.”
Consensus among analysts for Enphase is a Moderate Buy based on 8 Buys and 4 Holds. The average Enphase price target of $206.33 implies 12.9% upside potential.
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
