Deutsche Bank Initiates SolarEdge At Buy

Deutsche Bank initiated coverage on Solaredge Technologies Inc SEDG Monday with a Buy rating and $29 price target.

Analyst Vishal Shah noted that Solaredge offered “proprietary intelligent inverter products” which were “well positioned to gain market share in the fastest growing segment of the solar market.”

“SolarEdge’s DC Optimizer solution is patented and unique in the inverter space with room for improvement based on technology trends, IP development, and regular next generation rollouts for the foreseeable future. We expect increasing industry adoption of module level electronics to benefit SolarEdge, while the company’s patents and established technology head start should help it maintain or improve competitive positioning,” Shah wrote.

The analyst expected the company’s U.S. TAM to increase from approximately 2.6GW in 2015 to 5.5GW in 2016, while global TAM would increase from approximately 17GW in 2015 to 23GW in 2016.

TAM growth would be driven by “new products for the commercial market and as existing products become more competitive with traditional string inverters,” according to Shah.

Pricing pressure from large customers and competition were seen as risks. Additionally, customer concentration could be another problem.

For example, in FY 2014, SolarCity Corp SCTY accounted for approximately 19.1 of revenues while Krannich Solar accounted for 7.8 percent of revenues. Customer concentration risk may be offset, however, “by the introduction of new customers like [Vivint Solar and potential customers like [Sunedison]."

Shah valued the stock with a 50/50 mix of EV/Sales at a1.5x multiple and a 25x PE multiple, “in line with growth profile and an appropriate premium to peers.”

In conclusion, Shah remained bullish on residential/commercial solar for the foreseeable future, and expected SolarEdge to “capitalize on decreasing costs, expanding margins, and enhanced market share with room to run.”

Solaredge Technologies recently traded at $24.61, down 0.56 percent.