In mid-August 2022, US President Joe Biden signed the Inflation Reduction Act (IRA) into law. Prior to this, the probably most important legislative project of the current administration had passed the Senate and the House of Representatives with the votes of the Democrats. Although the name IRA suggests otherwise: At the heart of the approximately USD 433 billion investment package is the fight against climate change and the immunization of the US economy against its consequences. One of the immediate beneficiaries of the mega-initiative is the US photovoltaic industry. In addition to generous tax credits for the installation of solar power systems, the IRA provides direct subsidies for the production of solar components. The President's signature has also literally electrified Wall Street. Photovoltaic (PV) stocks experienced a rally last year. This also applies to Enphase Energy: In a weak stock market environment, the shares of the industry giant listed on the Nasdaq technology exchange increased in price by almost 50% in 2022.
Enphase's specialty is inverters. Since its founding in 2006, the California-based company has installed more than 52 million systems worldwide that convert direct current, generated in a PV cell, to alternating current. The repertoire of the group, which is active in more than 145 countries, also includes battery systems for storing solar power. On the stock market, Enphase recently experienced a small "short circuit": the share price is more than a third below the top set in December. The short-term downward trend has persisted, although the PV specialist was able to present strong figures a few days ago. In the fourth quarter of 2022, Enphase posted record sales of USD 724.7 million. Compared to the same period last year, the company grew by more than three quarters. Analysts had expected a lower rate of increase. Enphase also made significant progress in terms of profitability: at 31.7%, the operating margin exceeded the end of 2021 level by eight percentage points. At the bottom line, the Californian company generated adjusted earnings per share of USD 1.51 in the fourth quarter of 2022, compared to analysts' consensus of USD 1.25.
To cope with strong demand, Enphase is expanding production capacity in the US. CEO Badri Kothandaraman is already drawing on government grants from the IRA for this investment. The top manager also made people sit up and take notice when he came to the outlook. For the current first quarter of 2023, he forecasts sales in a range of USD 700 million to USD 740 million, which would mean that Enphase would grow by up to two-thirds compared to the first three months of 2022. Wall Street had expected revenues of less than USD 600 million until the forecast presentation. Despite the strong growth, the CEO is targeting a high gross margin (non-GAAP) of 41% to 44%. By comparison, this ratio was 41% in the first three months of 2022. It will be interesting to see whether analysts now adjust their earnings estimates upwards again. In recent months, they had made a moderate downward revision. The majority of ratings for the Enphase share continue to be positive. While 22 research houses rate the Nasdaq stock as a "buy", eleven are in favor of a "hold". Currently, Reuters does not document a sell recommendation for the inverter manufacturer.
For investors who nevertheless shy away from a direct investment in the volatile Nasdaq stock, a new issue from Leonteq could be interesting. The Zurich-based financial boutique has launched two softcallable barrier reverse convertibles on Enphase. In the product currency CHF, the guaranteed coupon is 17% p.a.. In the case of the USD-denominated counterpart, the issuer even pays out 20% p.a.. The barrier in each case is as low as 49% of the initial fixing. Alternatively, a multi BRC on Enphase and SolarEdge in CHF offers a coupon of 20% p.a., while the barriers are also 49% of the respective initial fixing. As long as the underlying does not fall to or below the barrier during the 15-month term, investors get back the full nominal. Otherwise, the partial protection expires. The investment would then be exposed to the price risk of the underlying asset with the weakest price performance. Please also note the soft callable feature: Leonteq can call and redeem the BRC early.
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