Axiom's Gordon Johnson Sees SolarEdge As 'A Great Short'

While there seems to have been further deterioration in Solaredge Technologies Inc SEDG's underlying business, the company’s shares jumped 7 percent in after-market trading Tuesday, Axiom's Gordon L. Johnson said in a report. Citing the sudden surge in the stock, the analyst commented, “[W]e would be adding/establishing sizeable short positions.”

SolarEdge’s fiscal second-quarter results and fiscal 2017 guidance do not justify the share price appreciation. Johnson pointed out that shares may have responded to “what many see as solid cost execution in F2Q17,” although this was due to a onetime item, as well as the revenue and gross margin guidance for FQ3 coming in at $110 million and 32 percent, versus the consensus estimates of $108 million and 31 percent, respectively.

Underlying Business Deteriorating, Guidance Seems Fragile

The analyst believes SolarEdge’s guidance is “fragile.” He pointed out that the consensus estimate had been reduced considerably through calendar year 2016 and the company had still missed by roughly $4 million.

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“Our views here are exacerbated by SEDG’s guidance that ASPs will fall 10–15 percent in FY17, versus just -7.7 percent of declines thus far, and the fact that SEDG’s actual CY16 ASP decline of “a little bit higher than 10 percent” to end 2016 was above the high-end of its negative 7.5–10 percent guided CY16 range to start 2016,” Johnson wrote.

Further shipments are declining and the guidance for both SG&A and R&D expenses have been raised to reflect SolarEdge’s efforts to diversify away from the challenged U.S. solar market, which represents about 70 percent of the company’s revenues, the analyst added.

At last check, shares of SolarEdge were up 5.19 percent at $15.20 in Wednesday's pre-market session.