On Friday, Morgan Stanley (NYSE:MS) adjusted its stance on SolarEdge Technologies (NASDAQ:SEDG) shares, moving its rating from Equalweight to Underweight. Alongside the downgrade, the firm significantly reduced the price target to $9.00 from the previous $23.00. The new target suggests a potential downside of approximately 30% from the stock's current price level.
The downgrade was prompted by a combination of factors affecting SolarEdge's market position and financial health. Morgan Stanley anticipates a challenging journey for the company to regain profitability, citing weakened demand in Europe and fierce competition from low-cost Chinese manufacturers.
These competitors are penetrating the market with affordable products, which could hinder SolarEdge's ability to maintain strong margins and generate sustainable cash flow.
Adding to the concerns, Morgan Stanley highlighted the upcoming debt maturity for SolarEdge in September 2025. The firm warned that any missteps in addressing this financial obligation might lead to a significant liquidity crisis for the company.
The warning comes as the demand and earnings outlook for SolarEdge continues to worsen, with little visibility into future demand in its key markets—factors that increase the risk to the company's cash flow projections.
Morgan Stanley also revised its 2026 EBITDA estimate for SolarEdge downwards by a stark 70%, reflecting the extended period of weakened demand in Europe and the longer path to profitability. The new discounted cash flow (DCF) derived price target of $9.00 is based on 0.4 times the firm's 2026 revenue estimate or 39.2 times its 2026 EBITDA estimate. This is a change from the previous price target metrics of 0.7 times revenue and 28.5 times EBITDA.
In other recent news, SolarEdge Technologies reported its third-quarter results, with the management team expressing confidence in the forward outlook, particularly for their Software (ETR:SOWGn) business segment. The company has also announced a collaborative agreement with Novartis (SIX:NOVN) for research and expanded software utilization.
Goldman Sachs updated its investment perspective on SolarEdge, increasing the price target to $28 while maintaining a Neutral stance. However, Truist Securities adjusted its outlook on SolarEdge, reducing the price target to $15, citing the company's fourth-quarter guidance which fell short of market expectations.
SolarEdge's strategic moves forward include stabilizing cash flows, regaining market share, and concentrating on its core solar and storage businesses. The company is also making strides in broadening its Software-as-a-Service (SaaS) offerings, including a predictive toxicology initiative in partnership with the Bill & Melinda Gates Foundation.
In terms of proprietary development, SolarEdge anticipates initial Phase 1 data in the fiscal year 2025 for multiple drug candidates targeting various cancers and solid tumors. Management also indicated the potential to progress an additional asset into clinical trials during 2025. These are among the recent developments in the company's operations.
InvestingPro Insights
Recent data from InvestingPro aligns with Morgan Stanley's cautious outlook on SolarEdge Technologies. The company's financial metrics paint a challenging picture, with a market capitalization of $743.5 million and a negative P/E ratio of -0.53 over the last twelve months as of Q3 2024. This reflects the company's current unprofitability, which is further emphasized by a significant revenue decline of 70.52% over the same period.
InvestingPro Tips highlight several concerns that echo Morgan Stanley's analysis. The company is "quickly burning through cash" and "suffers from weak gross profit margins," which corroborates the firm's worries about SolarEdge's path to profitability. Moreover, the tip that "18 analysts have revised their earnings downwards for the upcoming period" suggests a broader pessimism in line with Morgan Stanley's downgrade.
The stock's performance has been notably poor, with InvestingPro data showing a 75.01% price decline over the past six months and an 83.97% drop over the last year. This trend supports Morgan Stanley's view on the company's struggles and potential downside.
For investors seeking a more comprehensive analysis, InvestingPro offers 16 additional tips on SolarEdge Technologies, providing a deeper understanding of the company's financial health and market position.
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