By Elsa Ohlen

SolarEdge stock got a much-needed boost Tuesday after Goldman Sachs gave the shares a rare double upgrade to Buy. The market is overplaying the risks to the solar sector, analysts said.

Shares of the solar power equipment maker rose 13.6% to $13.99 in premarket trading.

Goldman upgraded shares to Buy from Sell with a target price of $19, reflecting a 43% upside to Monday's closing price of $12.32.

"Estimates are now finally bottoming for SolarEdge, with investor fears around the company's ability to address $350 million of debt in 2025 appearing overblown and creating a relatively attractive risk-reward for the equity at current levels," analysts led by Brian Lee wrote in a report Monday afternoon.

SolarEdge, which produces and installs technology for solar panels, has had a tough time lately as the sector is facing multiple challenges. U.S. demand has suffered amid high interest rates, which have made it costly to finance solar installations and resulted in fewer consumers opting for residential solar.

Donald Trump winning a second term in office has also weighed on clean energy stocks as the president-elect is expected to favor investments in fossil fuels rather than renewables.

The European solar market has become so big that growth has stagnated. That saturated has forced solar companies to significantly cut prices to be able to compete with rivals, which is eating into their margins. SolarEdge, which has a strong presence in Europe, disclosed a $612 million write-down of inventory it no longer expected to sell, alongside its latest quarterly report in early November.

Looking to get back on track and improve its books, SolarEdge announced plans to restructure and cut costs in late November, including cutting 500 jobs and discontinuing its energy storage business to instead focus on its core solar operations.

Goldman predicts next year will be an inflection point as SolarEdge's "shrink-to-grow" strategy begins to pay off, and expects it to report positive earnings by the fourth quarter of 2025.

"We see the makings of a turnaround story that is one of the more idiosyncratic and out-of-consensus Buy opportunities in our coverage," the analysts said, expecting residential solar to return to growth within a year.

While there are encouraging signs for the sector, including falling interest rates and increasing demand for electricity, it hasn't managed to lift solar stocks broadly.

SolarEdge stock is one of the worst performing solar stocks this year. Coming into Tuesday trading, shares are down 87% so far in 2024, while the Russell 2000 index is up 17% over the same period.

Peers Sunrun is down 49% since the start of the year, while Enphase has fallen by 46% and Sunnova by 74%. They were all rising modestly in premarket trading Tuesday.

Write to Elsa Ohlen at elsa.ohlen@barrons.com

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(END) Dow Jones Newswires

December 17, 2024 08:54 ET (13:54 GMT)

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