Bank of America upgrades SolarEdge on improving outlook, says stock can jump more than 20%

SolarEdge could be in for big gains in the near-term as its outlook improves, Bank of America said Wednesday. Analyst Julien Dumoulin-Smith upgraded the stock to buy from neutral and increased his price target to $367, which presents an upside of 22.8% from Tuesday’s. The upgrade comes about a month after the company’s third-quarter earnings call, where SolarEdge raised estimates back to where they were set at its analyst day earlier this year. “We acknowledge credit where it’s due and highlight tangibly clearer visibility over the near to medium term,” Dumoulin-Smith said in a note to clients. “Early signs of execution in 3Q22 and ratable improvement underpin a recovery in SEDG’s fundamentals.” The stock added 2.7% in premarket trading. It has gained 6.6% this year. SolarEdge is regaining ability to raise prices in markets after losing pricing power amid competitive pressures from Chinese competitors, the analyst said. These increases are mainly in international markets, which he said can help mitigate headwinds from the surging U.S. dollar and other macro pressures. Operating leverage has also improved as the rate of operating expense growth lags with the newfound European leverage and higher top-line growth. Management believes it could see an operating margin between 20% and 22% within its core solar offering by the end of 2023, which would mark an increase from the prior margin target of between 17% and 19%. He said that target is ahead of expectations from Bank of America and other firms. “This is well ahead of our prior expectations, and we believe the magnitude of improvement is far better than understood by the Street,” he said. He also said Wall Street is undervaluing the company’s residential storage business, which notably provides five times more revenue with the same expenses. Increasingly revenue from it power optimizer will also help its operating margin. — CNBC’s Michael Bloom contributed to this report.