Keep Shorting Enphase Energy Into Next Week’s Earnings Report?

Shares of small cap solar tech stock Enphase Energy (NASDAQ: ENPH) have been up over the past several months albeit some are betting they will make more money shorting rather than investing in shares as the stock currently has elevated short interest of 33.18% (according to HighShortInterest.com) heading into earnings next week.

Small cap Enphase Energy is a global energy technology company delivering smart, easy-to-use solutions that connect solar generation, storage and management on one intelligent platform. The Company revolutionized solar with its microinverter technology and produces the world’s only truly integrated solar plus storage solution. Enphase Energy has shipped more than 18 million microinverters while over 820,000 Enphase systems have been deployed in more than 120 countries.

Despite the shorting, shares have largely been moving up since September on generally positive news as the company starts to look more financially viable than your typical green stock:

Near the end of January, Enphase Energy repaid in full its senior secured term loan with Tennenbaum Capital Partners, LLC (TCP), an indirect, wholly-owned subsidiary of BlackRock (NYSE:BLK). The repayment includes a principal amount of approximately $39.5 million (plus accrued interest and fees) and the repayment will lead to the removal of liens on all of the Company’s assets. 

In early November, Enphase Energy reported the following Q3 earnings which included a much improved operating loss of only $374,000 thanks to a gross margin of 32.4% (up from 29.9% in the previous quarter and 21.4% in Q3 2017): 

GAAP   Non-GAAP
  Q3 2018   Q2 2018   Q3 2017   Q3 2018   Q2 2018   Q3 2017
Revenue $ 78,002     $ 75,896     $ 77,038     $ 78,002   $ 75,896   $ 77,038  
Gross margin   32.4 %     29.9 %     21.4 %     32.8 %     30.5 %     21.8 %
Operating income (loss) $ (374 )   $ (558 )   $ (5,901 )   $ 6,975   $ 4,133   $ (102 )
Net income (loss) $ (3,470 )   $ (3,738 )   $ (6,854 )   $ 4,626   $ 1,550   $ (964 )

 

For Q4 2018, the Company gave the following estimates:

Revenue to be within a range of $80.0 million to $90.0 million GAAP and non-GAAP gross margin to be within a range of 31% to 34% GAAP operating expenses to be within a range of $25.0 million to $28.0 million (including a total of approximately $7.2 million estimated for stock-based compensation expenses, additional restructuring expenses and acquisition related expenses and amortization). Non-GAAP operating expenses to be within a range of $18.5 million to $20.5 million (excluding a total of approximately $7.2 million estimated for stock-based compensation expenses, additional restructuring expenses and acquisition related expenses and amortization).

Other key news came in June when Enphase Energy announced a definitive agreement to acquire the SunPower Corporation (NASDAQ: SPWR) microinverter business for $25 million in cash and 7.5 million shares of Enphase common stock. Highlights of the deal included:

Enhances SunPower’s Equinox™ Home Solar System with a custom line of Enphase’s IQ microinverters for use with SunPower AC Modules Enphase expects to add $60-$70 million annualized revenue in second half of 2019 at 33%-35% gross margin Adds over 140 patents to Enphase’s strong IP portfolio Expects to close by end of the third quarter of 2018 with initial IQ shipments in the fourth quarter $25 million cash to be funded from Enphase’s balance sheet in two installments

Enphase Energy’s CEO commented:

“We are pleased to become the microinverter supplier for SunPower’s AC Modules. The IQ 7XS 320W AC microinverter in an ACM strongly complements SunPower’s high efficiency solar cells, communication and racking to create a high performance, high quality and easy-to-use Equinox™ Home Solar System, providing exceptional value to homeowners, dealers and architects.”

The SunPower CEO added:

“SunPower customers will continue to see the same quality, high performance that they see now as Enphase exclusively co-develops microinverters for our industry leading residential Equinox solar product. As a result of this strategic partnership, SunPower looks forward to benefitting from Enphase’s expertise, allowing us to continue containing costs, leveraging R&D support and helping streamline our business priorities.”

If demand for high-efficiency solar panels increases as they become more cost competitive, Enphase Energy will end up benefiting as the sole microinverter supplier to SunPower who’s shares have also recently turned a corner: 

Otherwise, the small cap’s shares could start moving again next week as the Company will report a fourth quarter (for the period ended December 31, 2018) and full year 2018 financial results on Tuesday, February 26 after the market closes. 

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