Mizuho analysts significantly cut their price target on SolarEdge (NASDAQ:SEDG) shares as concerns over the company’s recovery in the European market persist. However, analysts stress that these fears are overstated, indicating that upside potential in the stock remains.
The firm cut its target price by 40% to $50 per share “as we reduce growth earnings, valuation multiple, and price-in a potential inventory write-down.” The new price target still implies an upside potential of over 70% from current levels.
“Comments from channel checks during and after Intersolar Munich lead us to believe SolarEdge's revenue recovery could take longer, even after the destock is completed, owing to strained relationships between SEDG and their distributor customers in the Netherlands,” analysts said in a note.
SEDG shares were trading down 3.5% in premarket trading Wednesday.
Still, Mizuho reiterated an Outperform rating on the stock, arguing that concerns over steep price cuts and inventory write-offs due to oversupply are “overdone.”
Despite the inventory build-up, inverter price declines in Europe remain in the mid-single digits, consistent with management's previous comments. The firm also pointed out that Huawei is likely offering prices up to 50% lower in some markets, although this is limited to Latin America.
“That said, 2024/25 will be a transition year, and we expect a return to high 20s GM% (unsubsidized) in 2026,” analysts noted.
Mizuho analysts align their Q2 estimates with SEDG's guidance. For Q3, they project nominal growth with revenue at $351 million and adjusted EBITDA at negative $65 million, driven by reduced channel destocking and improved margins from operating leverage.
They also reduced 2024/25 adjusted EBITDA estimates by 23% and 47% to negative $282 million and $270 million, respectively, from negative $218 million and $508 million due to loss of market share in Europe through 2025 and slower market recovery.