Enphase Energy Bears The Brunt Of Slow Demand Recovery Amid De-Stocking In Distribution Channels: Analyst

KeyBanc Capital Markets analyst Sophie Karp reiterated an Overweight rating on Enphase Energy Inc (NASDAQ: ENPH), lowering the price target from $267 to $200.

The significant reduction in the price target reflects the analyst's reduction of 2023-2025 estimates due to the ongoing de-stocking in the distribution channels against slowly recovering demand.

Karp also highlighted a slight decrease in the target multiple from 40x to 35x 2024E EPS due to market uncertainty, which will persist at least through the end of 2023.

Karp added that Enphase Energy's guidance for lower sales and stable margins reflected the broader industry was slowing shipments. 

The analyst also thought investors will seek evidence of demand improving and channels clearing out before Enphase Energy can resume its multiple expansion.

The analyst further cautioned that if the demand for solar energy solutions did not grow or grew slower than anticipated, it could negatively impact operations. 

The company's products such as microinverter systems, including its storage solution, integrated AC Module, eighth generation IQ microinverters and Ensemble technology may not achieve broader market acceptance, preventing the company from increasing revenue and market share, the analyst said.

On the positive side, the analyst believed a high FCF yield will support the stock. Karp estimated the company will generate ~$2 billion in FCF between now and the end of 2025, ~11% of its current market cap. 

For FY23, the analyst expected revenues of $2.719 billion, lower than the previous estimate of $3.038 billion. FY23 adjusted EPS estimate is $4.77.

ENPH Price Action: Enphase Energy shares are trading lower by 0.12% to $132.72 at publication Thursday. The stock's 52-week low is $130.40 and its 52-week high is $339.92.

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