Solar industry poised to rebound on falling interest rates

Rafael Henrique | Lightrocket | Getty Images

Enphase Energy sees light at the end of the tunnel this year for the solar market after the industry has taken a beating from high interest rates.

High rates have depressed demand for residential solar installations in 2023, leaving companies such as Enphase saddled with too much inventory. Enphase manufactures inverters that convert solar energy into electricity that is compatible with the grid.

CEO Badri Kothandaraman is forecasting the company will see a bottom in the first quarter this year and then start to recover in the second quarter as a stuffed inventory channel is cleared.

Kothandaraman said rising utility rates combined with falling interest rates should also provide tailwinds this year.

“Make no mistake, utility rates are going up,” Kothandaraman told CNBC in an interview. “The interest rates are not going to be staying the same. People are finding better financial instruments like third-party leases.” 

“All of those won’t move the market overnight but they are all steady steps to make sure that the industry will grow long term,” he said.

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Enphase, YTD

Enphase shares soared more than 17% Wednesday despite the company reporting fourth-quarter earnings and revenue Tuesday afternoon that missed Wall Street estimates.

Enphase’s net income dropped 86% to $20.9 million in the fourth quarter compared to the year-ago period. The company’s revenue was down 58% to $302 million compared to the same quarter in 2022.

But Kothandaraman’s forecast that the solar market is on the road to normalization is lifting not just Enphase’s stock, but also the industry more broadly. The Invesco Solar ETF rose more than 5% in Wednesday afternoon trading.

Shares of Enphase’s competitor SolarEdge jumped more than 13%. The residential solar installers Sunnova and Sunrun were up about 14.5% and 5.2%, respectively.

Wall Street analysts’ reaction to Enphase’s earnings were mixed despite the stock rallying Wednesday. Bank of America’s Julien Dumoulin-Smith slashed his stock price target for Enphase by $3 to $69, which implies 31% downside from the company’s Tuesday close of $100.51.

“With limited visibility to a full recovery, we remain cautious on the outlook,” Dumoulin-Smith told clients in a Wednesday morning note.

Oppenheimer analyst Colin Rusch upgraded Enphase to outperform with a price target of $133, implying 32% upside from Tuesday’s close.

“While we expect ongoing volatility in shares, we are upgrading as we believe downside scenarios will now be fully built into expectations,” Rusch told clients in a Wednesday note.

— CNBC’s Pippa Stevens contributed to this report.

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