Enphase Energy Inc

ENPH Details

Enphase Energy Inc (NASDAQ: ENPH) is a global energy technology company and is engaged in providing microinverter-based solar-plus-storage systems. ENPH provides smart, easy-to-use solutions, which aids in connecting solar generation, storage, and energy management on one intelligent platform.

Decent Performance in Q3FY21 (For the Quarter Ended 30 September 2021)

• The company has generated record quarterly revenue of $351.5 million in Q3FY21 with shipments of around 2,599,575 microinverters, or 913 megawatts DC, and 65 megawatt hours of Enphase Storage systems.
• ENPH has delivered GAAP gross margin of 39.9% and non-GAAP gross margin of 40.8% as higher logistics and expedite costs were partly outweighed by a price increase on microinverters and cost management.
• The company has reported GAAP net income of $21.8 million and non-GAAP net income of $84.2 million.
• It ended the quarter with cash, cash equivalents and marketable securities balance of $1.4 billion and generated $113.4 million in cash flow from operations.

Exhibit 1: Performance Trend

Source: Analysis by Kalkine Group

Product Innovation Remains Key Part of Growth Strategy

ENPH continues to focus on product innovation that remains at the cornerstone of its growth strategy. Since its inception, the company has invested in custom application specific integrated circuit (ASIC) chips for its microinverters, which has started to bear fruit with a software-defined microinverter smart enough to form a microgrid. Recently, it has announced all-new, all-in-one Energy System with IQ8™ solar microinverters for customers in North America. In a step forward, the company, on 27 December 2021, has started production shipments of IQ8 Microinverters for customers in North America.

Expanding Battery Storage Network

ENPH is making sustained strides towards expanding battery storage network. Recently, the company stated that Enphase installers in New York is witnessing increased deployments of the Enphase® Energy System, powered by IQ™ Microinverters and IQ™ Batteries. This was mainly driven by continuing threat of extreme weather from winter storms to hurricanes that increase the risk of power outages.

Completed Acquisitions

The company has completed the acquisition of ClipperCreek, which offers electric vehicle (EV) charging solutions for residential and commercial customers in the U.S.

This acquisition is expected to provide the gateway into the rapidly growing EV sector. It will also aid in fast tracking its roadmap to enable bi-directional charging capability for vehicle-to-home and vehicle-to-grid applications. Besides, ENPH, on 21 December 2021, has finished the acquisition of 365 Pronto, Inc., which is a predictive software platform dedicated to ease the cleantech service landscape.

This acquisition offers Enphase’s installers the opportunity to service their own operations as well as maintenance contracts via the 365 Pronto software platform whenever it is required.

Key Metrics

The company’s revenue and gross profit increased at a strong CAGR of 24.5% and 56.3%, respectively over FY16-20 to reach US$774.4 million and US$346.0 million respectively. Further, the company’s gross margin significantly increased to 44.7% in FY20 from 18.0% in FY16 and from 35.4% in FY19. The company’s current ratio improved to 1.75x in FY20 from 1.42x in FY16, although it reduced from 2.51x in FY19. Notably, the debt-to-equity ratio sharply improved to 0.68x in FY20 from 26.08x in FY16.

Exhibit 2: Key Financial Metrics

Source: Analysis by Kalkine Group

Top 10 Shareholders: The top 10 shareholders together form 32.66% of the total shareholding while the top four constitute the maximum holding. Notably, The Vanguard Group, Inc. and BlackRock Institutional Trust Company, N.A. are holding a maximum stake in the company at 10.28% and 6.72%, respectively, as also highlighted in the chart below.

Exhibit 3: Top 10 Shareholders

Source: Analysis by Kalkine Group

Key Risks

The company’s business is exposed to any slowdown in demand for solar energy solutions that would in turn lessen the demand for its products. The company operates and conducts business in foreign countries and hence is exposed to the risk of movements in foreign currency exchange rates. Additionally, ENPH relies on sole-source and limited-source suppliers for key components and product. Any interruption could adversely impact the scheduled product deliveries to its customers.

Outlook

The company continues to focus on product innovation as part of its growth strategy. Besides, ENPH is making sustained progress on digital transformation. Meanwhile, the company has guided achieving revenue between $390 million to $410 million in Q4FY21, that comprises shipments of 90 to 100 megawatt hours of Enphase Storage systems. Additionally, the management forecasts GAAP gross margin to stay in the range of 37.0% to 40.0% and non-GAAP gross margin between 38.0% to 41.0%, excluding stock-based compensation expenses.

GAAP operating expenses is expected to remain in the range of $119.0 million to $122.0 million, after considering $52.0 million estimated for stock-based compensation expenses and acquisition related costs and amortization.

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

Technical Overview

Daily Price Chart

Source: REFINITIV, Note: Purple color line reflects Relative Strength Index (14-Period)

Stock Recommendation

The stock has been valued using EV/Sales multiple based relative valuation (on an illustrative basis) and the target price so arrived reflects a rise of low double-digit (in % terms). A slight premium has been applied to peer average EV/Sales multiple (NTM basis), considering record quarterly revenue generation in Q3FY21, strong demand for its microinverter systems and decent liquidity position.

Considering the aforementioned factors, we give a “Buy” recommendation on the stock at the closing market price of $148.51 per share, up by 0.94% as of 11^th January 2022.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices