Investing

Ominous Clouds Hang Over Once-Bright Enphase Energy, Turning Options Bets Bearish

Joshua Enomoto

Published: April 28, 2023 10:48 pm

Although inflation earlier fueled the dramatic rise of solar technology specialist Enphase Energy (US:ENPH), the subsequent response to accelerating prices may have finally undone ENPH stock. Following its first-quarter 2023 earnings disclosure on Tuesday afternoon, Enphase shares gapped down to investor horror the next day. When the dust cleared, the enterprise lost nearly 26% of equity value.

Absent of other critical context, Enphase overall produced solid results for Q1. According to Reuters, the solar specialist handily beat Wall Street’s consensus target of $1.20 per share reporting earnings per share of $1.37,

On the top line, the company posted net revenue of $726.02 million, mainly stemming from robust sales in Europe. In February, Reuters mentioned that management expected Q1 revenue to land between $700 million to $740 million.

Forecast Disappoints

Unfortunately for those holding onto ENPH stock, Enphase issued a disappointing revenue forecast for Q2, expecting to hit between $700 million and $750 million. That’s well below analysts’ consensus estimate of $773 million, per data from Refinitiv.

Some of the negative sentiment centered on questions about the net positive impact of European market sales. While Raymond James analyst Pavel Molchanov acknowledged that Enphase is “doing extremely well” across the Atlantic, net metering reform in California may disincentivize solar adoption.

The new policy changes what’s known as “net metering,” a decades-long policy which enabled homeowners with solar panels to sell excess power to their utility at or near the full retail rate. With the diminished incentive, the California market effectively cancels out the European tailwind for ENPH stock, per Molchanov.

Bank of America analyst Julien Dumoulin-Smith downgraded ENPH shares to ‘underperform’ from ‘neutral’ and cut his target for the stock price to $169 from $227.

Rates Reaction

However, the bulk of the negativity toward Enphase may center on the Federal Reserve and its aggressive attempt to tamp down accelerating prices through hiking the benchmark interest rate. Pointedly, Enphase stated in its latest Form 10-Q the following:

The global macroeconomic and market uncertainty, including higher interest rates and inflation, have caused disruptions in financial markets and may continue to have an adverse effect on the U.S. and world economies. As a result, customers may decide to delay purchasing our products and services or not purchase at all.

CEO Badri Kothandaraman told Barron’s in the wake of the quarterly report that high interest rates seem to be making solar power less attractive to customers in several states.

Further, as rates rise, the breakeven period for households making the shift to solar may extend further out. According to a CNET report, the average payback period in the U.S. for solar customers lands between six to 12 years. Further, data shows that most households lean closer to the latter.

Options Rumblings

Finally, rumblings in the derivatives market suggest traders have turned bearish. Following the close of the April 26 session, Fintel’s screener for unusual stock options volume shows that put volume hit 203,837 contracts against an open interest reading of 113,373. Typically, the average put volume is only 19,102 contracts.

On the other end of the equation, call volume reached 123,646 contracts against open interest of 103,934. Here, the average call volume is 22,653 contracts. Notably, options sentiment pings as pessimistic, with ENPH stock’s put/call ratio hitting 1.09. Since puts generally represent bearish wagers, put/call ratios higher than 1 suggest a negative outlook.

This article originally appeared on Fintel