Analyst: Henry Zhang
Thesis
The success of SolarEdge Technologies' (NASDAQ:SEDG) new HD-Wave inverter will be one of the main catalysts for the Company. We do not believe the market is properly pricing in the increase in revenue and operating margins when the HD-Wave inverter accounts for the majority of the firm's single phase inverter revenue, which can be expected as soon as Q4 FY2017. Although the industry is currently facing headwinds due to pricing pressures, we believe economies of scale coming from increased demand for solar PV systems, introducing more automated assembly lines, and the extension of the Solar Investment Tax Credit will increase demand for PV systems over the next four-five years and will allow SolarEdge to offset the expected decline in average per unit revenue.
Valuation and Recommendation
We believe SolarEdge is currently undervalued in the market. Utilizing a comparable company analysis and discounted cash flow analysis, we determined a 12-month target share price of $18, which indicates an upside of 39%. We are initiating a Buy rating for the stock. This assumes that the firm does not get acquired. IF it does, we expect a price target of $21 based on an 8.8x EV/EBITDA. We only recommend SolarEdge to investors with a medium to high risk tolerance, since the stock's short interest subjects it to short-term fluctuations.
Business Overview
SolarEdge Technologies Inc. is an Israeli-based solar technology company that provides power optimizers, solar inverters, and monitoring solutions for solar photovoltaic (PV) systems. The Company's focus is on improving the traditional inverter architecture, which suffers from significant inefficiencies. In traditional systems, if one PV module was partially shaded, it would significantly affect the power output of the entire string. Each PV module has a unique power production profile; however, when modules are wired in series within a traditional system, the entire string's power output is reduced, often correlated to the lowest-performing PV module
