Roth Capital Positive on SolarEdge (SEDG) Following Recent Investor Meetings

Roth Capital affirms its Buy rating and $40 price target on SolarEdge Technologies (Nasdaq: SEDG) following recent investor meetings with CFO Romen Faier.

Analyst Philip Shen sees SolarEdge's Gen3 inverter giving the company the ability to reach string inverter parity within the next two years.

Shen offered the following commentary:

• The Gen3 inverter lays the foundation for a revolutionary step in margin expansion. The new inverter is less than half the size and half the weight of the latest generation, which directly translates into a much lower cost structure. The residential version is set to be released toward the end of 2015 in the U.S., while a version addressing the commercial segment is expected to be introduced mid-2016. Benefits from the new inverter technology are expected to be "revolutionary" according to management. Even after baking in ASP erosion, the improvement in margins could be in the tens of percentages. That said, it will likely take at least three or four quarters to ramp-up to full production.
• The Gen4 optimizer is expected to be an evolutionary step. Gen4 is expected to be released sometime in H1'16. The margin improvement from the new optimizer could be as much as 10%. The manufacturing lines of the Gen3 optimizer, on the other hand, are expected to be automated shortly. The factory unit in Hungary will likely be automated by YE'15. Mexico is expected to be automated in-line with the capacity ramp-up timeline of Q2'16. China's two factory units will likely take 1.5-2 years; we expect this conversion to result in a meaningful improvement in quality.
• Shipments from Mexico facility are still on track for a Q4'15 launch. We continue to look for full production from Mexico to start by the end of Q2'16. After this expansion, SEDG should have a total of five factory units—one in Hungary, two in China, and two in Mexico, and each factory unit should have the capacity to produce 600MW of residential or 800MW of commercial product.
• Market share outlook is as expected. We don't see material changes to the market share outlook ahead. We expect SEDG to continue to win share and consolidate its position, as there are pockets of share potential that could come from NRG (NRG.TO, Neutral), for example. The rate of growth is clearly a function of pricing, and we believe international growth could be paced at 40% ahead.

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