Solar Stocks Bleed Amid Slowing Demand And High Interest Rates

aerial photography of grass field with blue solar panels

Photo by Andreas Gücklhorn on Unsplash

SolarEdge is down 18% in Thursday premarket after the company unveiled a disappointing Q3 report and cut Q4 outlook.

arlier this month, SolarEdge (SEDGsignificantly cut its revenue outlook for Q3 and raised concerns about weakening demand, leading to a major sell-off in solar stocks. These warnings came to fruition on November 1, when SolarEdge reported worse-than-expected third-quarter results and slashed Q4 guidance, plummeting the stock by 18% in the premarket.

 

SolarEdge’s Q4 Revenue Guidance Misses Estimates By Far

The woes for the solar energy sector aren’t likely to end any time soon. On Wednesday, home solar system provider SolarEdge saw its stock price plummet after-hours trading after the company posted weak Q3 financial results. Further, SolarEdge issued a downbeat guidance for Q4, forcing investors to jump ship.

Notably, the manufacturer of solar energy solutions reported a loss per share of 55 cents for the third quarter, narrower than the consensus estimates of 89 cents. Revenue came in at $725 million, well below the analysts’ expectations of $768 million.

Looking ahead, the company expects revenue to be in the range of $300 million to $350 million in Q4, a far cry from the consensus projection of $688 million. For the overall solar sector, SolarEdge estimates revenue to land between $275 million and $320 million.  

Zvi Lando, the company’s CEO, said the Q3 results reflect “a slow market environment, which has resulted in high inventory of our products in the distribution channels — in particular in Europe.”

 

Demand for Solar Energy Waning Amid High Interest Rates

The disappointing quarterly results come just several weeks after SolarEdge warned that its Q3 earnings would miss expectations, sending the stock tumbling 30%. Also back then, Lando raised concerns about the sector’s waning demand, with installation rates for solar panels declining in what historically was a favorable quarter. 

The headwinds troubling the sector come mainly due to a high-interest rate environment, which has reduced the demand for solar energy, and unfavorable state solar policies. Last December, California voted to trim the compensation rate for the solar incentive program, with another cut possibly on the way. 

This, coupled with a ‘higher for longer’ rate narrative, will likely continue to put pressure on the sector and, thereby, on stocks of solar energy companies. SolarEdge’s discouraging Q3 results caused a spillover effect on other solar stocks, with Sunrun and Enphase Energy being down 9.8% and 4.1% in the premarket. 


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