SolarEdge Technologies, an increasingly prominent player in electronics that tap energy from the sun, is poised to shine following its early 2015 initial public offering , heating up on strengthening commercial and residential demand in the U.S.
SEDGThe Israel-basedSolarEdge which produces optimizers and inverters to turn solar energy into electricity, went public on March 26 with an offering price of 18 and closed its first day of trading at 20.70.SolarEdge stock has climbedsince to around 39.
Its debut earnings release as a public company helped fuel the surge. In early May, SolarEdge posted quarterly revenue of $86.4 million, up 18% from the prior quarter and more than 180% year over year. Its fiscal 2015 third-quarter non-GAAP profit of 20 cents a share burned past analysts' views for 8 cents.
For the current quarter, analysts polled by Thomson Reuters on average forecast EPS of 22 cents, and 54 cents for the full fiscal year.
"They are executing very well," Mike Matousek, a trader at U.S. Global Investors, told IBD. "They are making some good money. ... This is the definition of a growth story."
SolarEdge is a part of IBD's Energy-Solar industry group. It has the group's second highest Composite Rating afterCanadian Solar
What Drives The Solar Industry
Analysts anticipate robust growth for SolarEdge during this calendar year and next in the U.S., in large part because both commercial developers and homeowners are trying to complete projects before a federal tax credit for solar energy expires at the close of 2016, IHS Technology analyst Christine Beadle told IBD.
The Investment Tax Credit, or ITC, is a 30% credit on solar energy systems -- think of solar panels on roofs -- for both homes and businesses.
Beadle says that because it is not known if the tax credit will be extended -- or reduced if it is extended -- many Americans looking toward long-term energy savings, particularly in sun-soaked and high cost of living states, are moving with haste to capitalize on the tax breaks.
"It's very much to do with the incentives," Beadle said. "It's really incredible, the speed at which people are going."
Beadle's IHS colleague, solar analyst Cormac Gilligan, forecasts rapid growth this year for the PV (photovoltaic) inverter market in the U.S. PV inverters convert direct-current (DC) solar-panel output to alternating current (AC) suited to the power grid. PV installations in residential and small commercial projects -- a SolarEdge sweet spot -- are projected to grow more than 40% this year, Gilligan told IBD.
"This represents a huge opportunity for inverter suppliers like SolarEdge," Gilligan said, noting that the greatest growth is anticipated in California, Arizona, Massachusetts, New Jersey and North Carolina.
Gilligan says that while the solar market in the U.S. is likely to hit its peak for the current decade in 2016, owing to the tax credit expiration, energy-conscious homeowners and small-business owners are expected to continue to drive growth in PV inverters. He says that from 2017 onward this decade, residential and small commercial markets are predicted to grow 15% on average annually in the U.S.
About 75% of SolarEdge's business is in the United States.
Gilligan says that in 2014, SolarEdge ranked among the top five PV inverter suppliers in the U.S., owing in large measure to a partnership with solar industry giantSolarCity (
). Gilligan adds that the rest of the top five inverter makers areABB (
),Advanced Energy Industries (
),Enphase Energy (ENPH) and SMA Solar Technology. He declined to provide specific ranks for each, saying that IHS divulges that information only to clients.
He noted, however, that SolarEdge is "gaining market share rapidly" on the four companies ahead of it in the 2014 rankings.
SolarEdge did not respond to IBD's interview requests. But following its earnings release, Roth Capital Partners analyst Philip Shen said in a research report that the company had told analysts that it expects the vast majority of its sales to continue to be in the U.S. and that it "expects to penetrate the majority of the top customers in the U.S." over the course of 2015.
Teaming With Tesla
SolarEdge also this year announced a collaboration withTesla Motors (TSLA) on its Tesla Powerwall in-home stationary battery , which can store the energy from solar panels for later use.
"Together, we are taking the first step towards widespread adoption of integrated solar energy generation and storage in the residential market," Lior Handelsman, marketing and product vice president of SolarEdge, said in a May news release.
Tesla CEO Elon Musk said in the electric carmaker's latest quarterly conference call, in early May, that response to the battery systems has been "overwhelming." At the time, Tesla had taken 38,000 Powerwall pre-orders and 25,000 pre-orders for its larger-scale Powerpack, the latter mostly from utilities.
Jed Dorsheimer, an analyst at Canaccord Genuity, said in a May research report that "Energy storage has the potential to serve as an additional growth driver" for SolarEdge. "We are already starting to see this segment bear fruit, not yet on the top line but with increased visibility from Tesla Energy's recent battery announcement."
U.S. Global Investors' Matousek notes that many solar energy stocks sank along with oil prices in 2014. Given that solar energy is an alternative to expensive fossil fuels, he says, it made sense for investors to anticipate that solar demand would slow as prices at the pump dropped and reduced near-term incentives to shop for lower energy alternatives.
But, he adds, oil prices will inevitably rebound. Already, he says, with the modest recovery this year in crude prices, investor attention has turned back to the solar realm, benefiting the likes of SolarEdge's stock.
When oil prices start climbing substantially, Matousek said, "the solar companies will get talked about even more. ... With energy, people look where they can save. Money goes where it is treated best."
