In 2022, Enphase rewarded investors with a 44% return vs the Nasdaq’s decline of 33%. During this time, Enphase surpassed consensus expectations each quarter through a combination of higher sales and margin expansion. Q422 ended on a solid note. For Q123, the market is expecting $1.22 eps, an increase of 54% from 2022. For 2023 ytd, Enphase is down about 15%. We believe this is primarily due to lack of visibility into the short-term outlook for US residential solar installations that was exacerbated by the SIVB failure which we wrote about for premium readers.
With that in mind, Enphase is due to report Q123 earnings on 4/25/23. These are the key factors we will be monitoring in the earnings release.
1. Update on the European business
2. Order visibility at US residential installer level
3. Status of US based manufacturing operations
4. Potential benefit from Inflation Reduction Act
European Business
Currently, Enphase’s revenue breakdown is 71% US and 29% International. The main international markets are Netherlands, France, Germany, Belgium, Spain, Portugal and the UK. Q4 revenue was up 21% sequentially and 130% year on year. Enphase is on track to introduce the IQ8 inverter into new countries shortly. Meanwhile, q4 ended with a record sell-through and low inverter inventories at the channel level, reflecting continued healthy demand.
US Residential Installer Activity
The market is waiting to see if there’s any SIVB fallout at the installer level and consumer level. Module/Inverter manufacturers typically sell to the installers who then sell to the consumer. Installers typically provide financing to the consumer. So there is a concern how the SIVB fallout may impact the installers' ability to finance. Generally speaking, those that didn't rely on US banks for financing were viewed as being better positioned to weather the storm.
Status of US based manufacturing operations
We will look for an update on the status of the US based manufacturing capabilities. The timing of which will be a critical driver from an earnings perspective.
Potential benefit from Inflation Reduction Act
We wrote about in the key provisions in the Inflation Reduction Act for our premium readers. Briefly, those companies that can claim the corporate tax credit will see a direct impact on their earnings per share. The amount that can be claimed depends on several factors and will vary for each company. For example, how much is actually manufactured in the US and when needed how much content is procured from countries which the US has free trade agreements with.
The intent of the IRA legislation is to spur domestic based manufacturing of clean energy. For our premium readers we identified First Solar as benefiting the most compared to other solar module manufacturers.
We expect Enphase to benefit as well. However, given that their manufacturing is done by electronic contract manufacturers. They will to not be able to claim the full tax credit. The potential impact is still meaningful. We outlined the direct impact to Enphase’s gross margin in our recent earnings preview for premium readers.
Members of the I/O research team contributed to this article
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