2023 was a bad time to be holding Enphase Energy (ENPH 3.80%) stock. Shares in the solar energy technology company were cut in half last year. That downtrend continued into 2024. But one analyst firm now thinks the stock has bottomed and sees a recovery underway.
This week RBC Capital began covering Enphase stock with the equivalent of a buy rating and a share price target of $140. That price represents a gain of more than 10% from recent levels. That is on top of a 25% jump Enphase stock has made since it reported quarterly earnings on Feb. 6.
Enphase is getting back to growth
Enphase is a leading supplier of residential solar equipment and software. Its business has been in decline over the past year as higher interest rates globally impacted the ability of consumers to finance solar roof systems. Supply chain snarls also impacted Enphase's business. The company has been working to decrease excess inventory at its partner distributors for months now.
Yet for all the business headwinds in 2023, Enphase still generated only slightly lower revenue than it did in 2022. And that was almost double its sales in 2021. The company's gross margin also improved from below 42% to more than 46% in 2023 versus 2022 as well.
What's a fair price for Enphase?
RBC Capital also believes its 55% market share for its home solar equipment gives it a "robust competitive moat." The firm's buy rating comes from confidence that demand for residential solar will increase.
That makes sense as interest rates are likely to begin decreasing this year and moving beyond 2024. So RBC's price target of $140 is also likely to be on point in the coming months. However, Enphase still trades at a price-to-earnings (P/E) ratio of about 40. It will likely take sustainable growth in earnings for the stock to move much higher than that.
But as a more favorable backdrop returns, that could be coming in 2025 and beyond. That's also why RBC Capital initiated coverage on Enphase with an outperform rating.
