SolarEdge Technologies’ postearnings rally is overdone and headwinds for the company have not gone away, according to BMO Capital Markets. Downgrading shares to underperform, analyst Ameet Thakkar said he is now “turning [the] page from short-term liquidity to longer-term earnings power” with his outlook on SolarEdge. He increased his price target by $2 to $15, but that still suggests shares could decline more than 23%. The “narrative now shifts from near-term liquidity risks towards the trajectory of the company’s operating earnings power that we think that has been negatively impacted not only due to current demand (company estimates implied current quarterly demand of $400MM) and pricing but also its cost structure,” Thakkar wrote in a Thursday note to clients, adding that his estimates suggest the “current rally and valuation premium is not sustainable.” SolarEdge’s recent outperformance has been largely driven by short-covering around the company’s fourth-quarter results, which suggested the company has enough liquidity, the analyst noted. SolarEdge’s quarterly financial report released Wednesday reflected a loss for the period but a beat on revenue expectations, as well as positive free cash flow, which led shares to rally about 20% during the session. The stock is now up 44.3% this year but down more than 76% over the past year. SEDG 1Y mountain SolarEdge stock performance. Looking ahead, Thakkar said SolarEdge’s core inverter and battery business appears to remain significantly below his firm’s estimates and consensus forecasts. It is “several quarters away from achieving break-even operating income which in our view will now dominate the narrative from here,” he said.
