If Enphase Energy stock on Wednesday is any indication, that might be it for when it comes to the residential solar market in the U.S. -- at least for awhile.
U.S. demand for residential solar has weakened under interest rate pressure. Shares of Enphase Energy could be an investor no-go for some time after the battery and solar company's earnings sorely disappointed.
Enphase stock fell 16% to $24.89 on Wednesday and was on pace for its lowest closing price since March 18, 2020, according to Dow Jones Market Data.
It was overall a bad day for solar stocks. The Invesco Solar ETF fell 3.8% with First Solar declining 1.5% and Sunrun dropping 2.1%. Nextpower was down 0.7%.
Wall Street suggests that investors think twice about the stock. A flurry of firms slashed price targets on Enphase after the company said third-quarter revenue declined 28% from a year ago.
Enphase's fourth-quarter guidance also left Wall Street wanting much more. That's the way it has gone for the company and the U.S. residential solar market, which has been rocked by higher interest rates and the expiration of federal tax credits.
Along with the price target cuts, Roth Capital downgraded Enphase to Neutral from Buy and Oppenheimer downgraded the stock to Perform from Outperform.
While the company has worked aggressively to maintain price and margin discipline, Oppenheimer analyst Colin Rusch said in a research note that ongoing price cuts on energy storage have started to hit gross margins. This along with disappointing U.S. solar installations spells bad news for Enphase, according to Rusch.
Rusch didn't have a price target on the stock.
Morgan Stanley analyst David Arcaro, meanwhile, cut his Enphase price target to $16 from $24 and maintained an Underweight rating.
"Interest rates are weighing on residential solar demand as expected, causing soft U.S. demand and challenges in some international markets," Arcaro said in the research note. "We expect the stock to remain under pressure until there is further evidence of success in new growth initiatives in 2027."
BNP Paribas Equity Research analyst Moses Sutton echoed this sentiment.
Sutton said in a research note that Enphase's growth is dependent on whether it can successfully move away from dependence on residential solar and ramp up its battery storage and solid-state transformer businesses.
While many painted a bleak picture of Enphase's prospects, some were more optimistic.
William Blair analyst Jed Dorsheimer said the disappointing quarter and guidance brings up a central question: "Have shares washed out all solar expectations setting up for a battery energy storage system and solid-state transformer opportunity?"
"While we might not be there yet, we do feel Enphase is near bottoming," he said.
With shares trading at levels not seen since 2020, Dorsheimer might have a point. But investors beware.
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