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Why Enphase Stock Is Rocketing Higher After Earnings

By Jason Hall – May 6, 2020 at 1:39PM

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Solid results, a modest but not terrible forecast for the second quarter, and a likely squeeze on short-sellers has the stock surging higher.

What happened?

Shares of solar panel power electronics and energy storage systems Enphase Energy (ENPH -1.46%) are up 18.7% at noon EDT on May 6. Enphase reported first-quarter results yesterday after market close, with sales more than doubling and operating income up more than six-fold year over year. This strong result came even as the coronavirus pandemic began affecting the company's results late in the quarter as more states implemented stay-at-home orders and businesses began to shut down and lay off workers. 

So what

Enphase reported $205.5 million in revenue, up 105% from last year, and net income of $0.50 per share, a massive improvement from last year's $0.02 per share. Gross margin improved from 33.3% to 39.2%, while the company generated a strong $39.2 million in operating cash flow. 

Installer putting solar panels on a home.

Image source: Getty Images.

Even when adjusting for non-recurring expenses and credits, Enphase management said its results were strong. On a non-GAAP (adjusted) basis, earnings were $0.38 per share, versus $0.08 per share last year. 

In addition to its solid results leading some investors to buy shares, Enphase's stock price is likely surging as short sellers buy stock to close short positions. More than 11% of Enphase shares were sold short according to the most recent data. 

Now what

Enphase benefited from the strong momentum it has built up over the past couple of years as one of the main providers of power electronics for residential and commercial distributed solar in the U.S. However, that momentum stalled late in the quarter as solar installers in many states were ordered to cease operations. Sales in the first quarter were actually lower than the $210 million the company generated in the fourth quarter of 2019. Over the past couple of years, Enphase has grown sales sequentially as often as not. 

Moreover, the impact of the coronavirus shutdown will become far more apparent in the second quarter. Enphase is expecting sales of $115 million to $130 million as people and companies put off solar installations. Additionally, the company was unable to launch its new Encharge battery storage system in the first quarter as planned, and has pushed the product launch to June. 

Yet even given the uncertainty of how long the COVID-19 crisis will affect solar systems sales, Enphase has almost $550 million in cash against $101 million in debt maturing over the next year. It's likely the company could burn some of its cash to support operations in the coming quarters, as solar sales fall. It's likely that solar system sales could take some time to recover even once the economy opens back up. In the U.S. alone, 30 million people have lost their jobs in the past eight weeks, and the financial implications of a slow recovery could mean last year's momentum will take some time to recover. 

But with a strong balance sheet, a leading, in-demand product portfolio, and an expanding geographical presence, Enphase is positioned to remain a leader in residential and commercial solar. 

Jason Hall owns shares of Enphase Energy, Inc. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Enphase Energy, Inc. Stock Quote
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