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Enphase stock spikes on 'textbook' deal for SunPower microinverter business

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Essential Energy Insights - January 2021


Enphase stock spikes on 'textbook' deal for SunPower microinverter business

Enphase Energy Inc.'s stock jumped out of the gates June 13, rising as much as 38% in morning trading to $6.23 per share, after the home solar technology supplier announced an agreement to purchase SunPower Corp.'s microinverter business. The deal, which includes $25 million in cash plus 7.5 million shares when the transaction closes, would have a total value of roughly $70 million at current pricing.

In large part, investor enthusiasm may be driven by the five-year exclusive microinverter supply contract that Enphase also secured as part of the agreement. "In effect, SunPower will begin to outsource its microinverter needs to Enphase rather than produce them in-house," Raymond James & Associates analyst Pavel Molchanov wrote in a June 13 note to clients, calling the deal "textbook customer acquisition."

The transaction "boosts the odds" that Enphase can avoid the tariffs President Donald Trump imposed on imported solar panels in January, Molchanov added. Although not a panel producer itself, Enphase has multiple microinverter supply deals with China-based makers of so-called AC modules that are impacted by the 30% import tariffs. Because its miniature power electronic devices are integrated into the back of the AC modules, Enphase has been "inadvertently affected" by the tariffs, CEO Badri Kothandaraman told analysts in February.

Enphase and SunPower, both California-based companies, are seeking exemptions from the tariffs placed on their foreign-made products. SunPower, however, also has hedged against the tariffs with its pending purchase of SolarWorld Americas Inc., an Oregon-based panel producer.

Oppenheimer & Co. analysts expect "significant demand" for the combination of Enphase microinverters and SunPower panels "given the possibilities for balance of system and installation cost reduction," they wrote in a June 12 client note. AC modules that include microinverters already account for more than 80% of SunPower's residential sales, they said.

"The bottom line is, it just makes sense from the perspective of both parties," Kothandaraman said on a June 12 conference call discussing the deal. Enphase also acquired more than 140 patents from SunPower, which acquired its microinverter technology through its 2014 purchase of SolarBridge Technologies Inc.

The transaction, which the companies expect to close by the end of the third quarter, represents $60 million to $70 million in additional annualized revenue in the second half of 2019, Enphase estimated.

This latest boost to the company's share price comes after Enphase narrowly avoided expulsion from the Nasdaq in 2017 when its stock dipped under $1 per share for several months. As of June 12, Enphase's stock has gained more than 73% in 2018.