SolarEdge's Restructuring To Generate Savings And Free Cash Flow Upside: Goldman Sachs Analyst

SolarEdge Technologies, Inc. SEDG shares are trading higher on Tuesday. On Monday, Goldman Sachs analyst Brian Lee raised its price target from $19 to $21, while reiterating a Buy rating.

Yesterday, the company revealed layoffs of approximately 400 employees and post-completion the workforce reduction is expected to save $9 million to $11 million quarterly, excluding implementation costs.

Also, the company disclosed safe harbor agreements with two of the largest U.S. residential solar installers and financers, including Sunrun, and completed its second sale of 45X Advanced Manufacturing Production Tax Credits.

Following the November restructuring announcement and latest update, the analyst expects SEDG to achieve approximately $17.5 million in cost reductions by the end of 2025.

This should help the company accelerate its path to profitability as the macroeconomic environment stabilizes, adds the analyst.

Moreover, Lee finds the agreement with Sunrun particularly significant, considering investor concerns about potential share losses to Tesla, as its new Powerwall 3 battery does not include SEDG inverters.

Although the exact amount of credits sold wasn’t disclosed, the company seems to be following a strategy to sell 45X credits regularly on a quarterly basis, says the analyst.

Lee writes that 45X credits sale deal should support SEDG’s fourth quarter free cash flow guidance of ($20 million) to $0 million, with the potential for upside, as the company aims to achieve positive FCF in the first half of 2025.

Consequently, the analyst revised adjusted EPS estimates for 2024-2026 to ($20.84) for 2024, ($2.99) for 2025, and $1.78 for 2026, compared to the previous estimates of ($20.84), ($2.89), and $1.64, respectively.

The change reflects lower operating expenses, with the 2025 estimate reduced due to restructuring charges.

Also, Wells Fargo raised its price target from $15 to $19 while maintaining an Equal-Weight rating.

Investors can gain exposure to the stock via ProShares S&P Kensho Cleantech ETF CTEX and SPDR S&P Kensho Clean Power ETF CNRG.

Price Action: SEDG shares are up 12.9% at $18.39 at the last check Tuesday.

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