Solar Battery Maker Enphase Clears Buy Point: Can Rally Hold?

Key Points

• Enphase Energy briefly passed a buy point Friday but ended the session lower.
• The stock gapped up in two successive sessions last month, following better-than-expected earnings and an analyst upgrade.
• In the past eight quarters, Enphase increased earnings at rates between 31% and 212%. Revenue grew between 26% and 152%.
• The company is likely to benefit from federal subsidies favoring renewable energy. 

Shares of solar battery system maker Enphase Energy NASDAQ: ENPH briefly cleared a buy point Friday, but reversed lower, even as the broader market advanced.

That type of price action happens fairly often, as investors who bought at certain levels nab profits as the stock overcomes price resistance. 

In the case of Enphase, the stock gapped up in two successive sessions late last month, following an analyst upgrade and a strong third-quarter earnings report. On October 26 it retook its 50-day average in heavy volume. Shares had traded below that key price line since late September.

Starting on November 1, the stock began etching a handle to a cup pattern. It cleared a handle buy point above $316.87 at the open Friday, but about an hour into the session, it began selling off.

That doesn’t mean the breakout won’t hold; it could mean that investors who bought at lower price points are taking profits, now that the stock cleared resistance.

One of Enphase’s focuses is solar microinverters. These help increase the production of sun-powered energy while improving energy management and reliability. The company also makes battery systems. It mainly operates in the residential market. 

Earnings & Revenue Ahead Of Views 

In the third quarter, Enphase reported net income of $1.25 per share on revenue of $634.7 million. That topped Wall Street consensus views of $1.09 a share and $530.2 million, respectively. 

When it comes to growth, Enphase is a standout. In the past eight quarters, Enphase increased earnings at rates between 31% and 212%. Revenue grew between 26% and 152%.

There’s likely more strength ahead. For the full year, Wall Street is eyeing earnings of $4.37 per share, an 81% increase. Next year, that’s seen growing another 24% to $5.42 per share. 

Based on recent legislation, those don’t seem like pie-in-the-sky hopes and wishes. The Inflation Reduction Act will expand opportunities for renewable energy companies in the coming years. 

Enphase’s stock price has been on a tear, with gains of 19.78% in the past month and 69.04% year-to-date. The one-month gain was a paltry 1.98% as the stock rallied back from a 17% pullback in the recent cup pattern. 

Analysts have a “moderate-buy” rating on the stock with a price target of $293.04. That represents a 10% downside but remember: That’s a consensus view. If you dig into the data compiled by MarketBeat you’ll see that seven analysts boosted their price targets after the most recent earnings report.

You’ll also notice that many of these analysts have a price target that falls within a range, with the lower end of these ranges pulling down the consensus average. In fact, in some cases, the stock has already far surpassed an increased price target.  

With a market cap of $39.76 billion, Enphase is a component of the S&P 500. However, with a weighting of just 0.126011%, it won’t move the needle when it comes to index direction. 

Fellow S&P Component Still In Base

The entire solar energy subindustry is among market-wide top performers at the moment. Fellow S&P 500 component SolarEdge Technologies NASDAQ: SEDG advanced 26.10% in the past week and 36.48% in the past month. 

The stock gapped up on November 8, following a better-than-expected quarterly earnings report. Although net income declined by 37% from the year-earlier quarter, the bottom-line results still came in ahead of views. 

On the top line, SolarEdge, which makes power and monitoring systems to manage and optimize energy generation, reported $836.7 million in sales, up 59% from a year ago. 

SolarEdge is attempting to climb out of a double-bottom consolidation that began in early August. It’s corrected 49% so far, but closed Friday at $288.91, up $5.24, or 1.85%. It’s currently about 11% below a potential buy point above $324.32.