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Enphase Energy Just Reported Some Sunny News

By Howard Smith - Feb 26, 2020 at 9:11AM

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This solar energy equipment supplier reported a 43% jump in stock after earnings.

During 2019, Enphase Energy Inc. (ENPH 0.25%) worked to increase production capacity in an effort to keep up with demand for its solar-power system microinverters -- the product that converts energy in a solar panel. In July 2019, it planned to be able to supply 2 million microinverters for the fourth quarter. Last week, the company announced fourth-quarter results, including the shipment of approximately 2.1 million microinverters, more than double what was shipped in first quarter. Now the company -- which aims to supply full platform solutions for solar power generation, including storage and integration with the power grid -- says that demand for its products remains strong, and that it aims to continue 2019's sales trajectory. 

a solar power system outside.

Image source: Getty Images.

Rising sales and rising margins

The rapid rise in microinverter shipments and revenue throughout fiscal 2019 are shown here:

Metric

Q4 2019 Q3 2019 Q2 2019 Q1 2019
Microinverter shipments 2.113 1.796 1.284  0.976 
Revenue $210  $180 $134.1

$100.2

Data source: Enphase. Note: Figures are in millions.

Throughout 2019 alone, Enphase averaged quarterly sequential growth of almost 30% on microinverter shipments and revenue. That growth coincides with increasing gross profit margins as well. 

ENPH Cash from Operations (Annual) Chart

ENPH Cash from Operations (Annual) data by YCharts

The company also estimates that gross margins will continue to rise to between 36% and 39% for the first quarter of 2020. 

Offering a full solution

Though the recent quarterly results were strong, what drove the stock price up might just be what investors think lies ahead for Enphase Energy. As the latest version of its microinverter production capacity continues to ramp up, the company is also taking pre-orders for its battery storage system, Encharge.

Encharge uses the Ensemble management system technology to allow customers to go off-grid, when the power situation warrants. According to President and CEO Badri Kothandaraman, it provides a full solar solution, allowing customers to "generate energy, store energy and control energy in a single system, all completely designed by Enphase." 

Encharge will begin shipping in March 2020. The company has called pre-order volume "very healthy," and has said that it was ramping up installer training. 

Growing partnerships

Enphase has also announced some important partnerships since November 2019. This includes a supply agreement with Sunrun, Inc. (RUN 4.28%), a leading domestic residential solar, battery storage, and energy services company. 

The company also announced it was selected by Petersen-Dean, Inc., a privately held residential and commercial roofing and solar company, as its main supplier of inverters and battery storage systems. 

Most recently, the company has partnered with CREATON GmbH, one of the leading residential roof manufacturers in Europe for in-roof residential solar power systems throughout Germany.

About competition and valuation

Enphase isn't the only solar system and storage company taking advantage of the increase in market demand. Backup generator maker Generac Holdings Inc. (GNRC 3.29%) recently introduced its own battery storage solution, and increased its 2020 outlook for storage sales by 50%.

Additionally, Israeli-based inverter supplier Solaredge (SEDG 0.96%), recently reported record quarterly and annual revenue, most of which was attributed to its solar business.

The valuation of all three of these players in solar systems has increased with recent results, as can be seen in the year-to-date data below. 

ENPH Price to Free Cash Flow Chart

ENPH Price to Free Cash Flow data by YCharts

Enphase appears to be more expensive against free cash flow and forward price-to-earnings ratios. Unlike its competitors, however, Enphase is a pure play on complete solar systems. While risk-averse investors in renewable energy stocks might want to look for a pullback, it's clear that the market is growing, and Enphase has products and partnerships to continue to take advantage of it. 

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Stocks Mentioned

Enphase Energy, Inc. Stock Quote
Enphase Energy, Inc.
ENPH
$195.72 (0.25%) $0.48
Generac Holdings Inc. Stock Quote
Generac Holdings Inc.
GNRC
$217.51 (3.29%) $6.93
SolarEdge Technologies, Inc. Stock Quote
SolarEdge Technologies, Inc.
SEDG
$276.30 (0.96%) $2.62
Sunrun Inc. Stock Quote
Sunrun Inc.
RUN
$24.36 (4.28%) $1.00

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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