Enphase Energy and Nike have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – October 17, 2022 – Zacks Equity Research shares Enphase Energy, Inc. ENPH as the Bull of the Day and Nike, Inc. NKE asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on DCP Midstream LP DCP, The Williams Companies Inc WMB and MPLX LP MPLX.
Here is a synopsis of all five stocks.
Bull of the Day:
Enphase Energy, Inc. is a solar energy company that operates in the inverter space, which has been able to sustain far more consistent growth than the broader solar industry. Enphase stock has skyrocketed over the last five years and it’s climbed to fresh highs in 2022 even as the market falls and growth stocks tumble.
Enphase reports its third quarter results on October 25. ENPH’s most recent analyst estimates suggest it might be poised to post another huge quarter and provide upbeat guidance as the solar energy sector continues to gain momentum in the U.S. and beyond.
Enphase Basics
Enphase is a solar energy firm that’s thrived as the one of largest sellers of microinverter-based solar and battery systems in the world. Inverters are vital high-tech components in the solar energy ecosystem because they convert the DC (direct current) power that solar PV (photovoltaic) panels produce into the AC (alternating current) power used in our homes and businesses.
Enphase has hundreds of patents and patent filings covering various renewable energy technology for the U.S. and beyond. Enphase has thrived in a space alongside others such as SolarEdge Technologies (SEDG) because its microinverters are designed to work one-for-one with each individual solar module to help generate more consistent power and for production to continue even if one module or panel fails.
Meanwhile, string or central inverters often stop working if just one panel fails. Plus, microinverters help things run smoothly if one or more panels are obstructed by leaves, snow, clouds, or something else because the panels operate independently. Enphase has been perfecting its flagship microinverters since 2008 and they are designed to last up to 25 years to match the length of the panels themselves.
Overall, Enphase aims to connect solar generation, storage, and energy management into one intelligent platform. The company has gained traction within the home solar space, as well as for businesses and installers, working directly with the likes of SunPower, Panasonic, and others.
Enphase has also expanded beyond microinverters into the battery storage segment that allows users to store power, which is crucial given the variability of the sun. And its namesake app aims to help homeowners and businesses effectively and efficiently manage their power usage, storage, and more.
Growth Outlook
Renewables accounted for 20% of the total U.S. electricity generation mix in 2021, to put the growing segment neck and neck with coal. This marks a stark contrast to 2010 when coal accounted for around 45% of electricity and renewables generated 10%—almost all from hydropower.
The U.S. Energy Information Administration projects renewable’s share of the electricity mix will double by 2050, with a bulk of the growth expected to come from solar. Plus, the U.S. and many other governments around the world are spending money and offering tax incentives to spur growth in solar and other alternative energies.
Enphase has ample runway as solar energy expands, with many envisioning a smart-home future where solar panels power homes, electric cars, and even allow consumers to sell electricity back to the grid. The company has relationships with many different solar panel companies and it’s growing its reach outside of the U.S. Enphase announced in early September that it boosted its distribution partnership with German firm BayWa r.e. AG.
The solar industry is just starting to take off. Enphase’s revenue climbed from around $300 million in fiscal 2018 to $1.38 billion in FY21. Zacks estimates call for ENPH’s revenue to surge another 63% on top of last year’s 79% expansion to pull in $2.25 billion in 2022. Enphase is then projected to post another 33% sales growth to reach $3 billion in FY23.
Enphase’s adjusted earnings are projected to climb 71% this year and an additional 26% next year to hit $5.16 per share. Plus, the company has continued to up its bottom-line guidance in the face of rising costs and a global economic slowdown that’s seen the earnings outlook for the S&P 500 fade rather significantly.
ENPH has topped our quarterly EPS estimates by an average of 25% in the trailing four quarters. And its Zacks Most Accurate estimates (most recent) have come in higher than the current consensus, especially for FY23. This bottom-line positivity is a great sign and highlights Enphase’s resilience and growth, and helps it land a Zacks Rank #1 (Strong Buy) right now.
Other Fundamentals
Enphase soared from around $3 per share five years ago all the way to $240 at the moment. This run includes a 900% surge in the past three years. ENPH stock is also up 40% in the trailing 12 months to blow away its Zacks Alt-Energy market’s 13% drop and its Solar industry’s 18% dip. ENPH has also managed to climb 32% in 2022 even as the market tumbles and growth stocks get crushed.
The stock has fallen recently, which should help investors grab a better entry point. Enphase is down 25% since it hit new all-time highs in the middle of September to trade at around $242 per share. In terms of valuation, ENPH is not what anyone would call cheap, but that’s not the kind of stock it is right now.
ENPH trades at 67X forward earnings vs. its Solar industry’s 52X. This is far better than the 120X it traded at this time last year and well off its highs. Wall Street is willing to pay up for its future growth and its 1.5 PEG ratio nearly matches its industry’s average and is directly in line with Tesla (TSLA).
Enphase also sports a solid balance sheet, with $1.3 billion in cash and equivalents and $2.4 billion in total assets vs. $480 million in current liabilities and $1.9 in long-term debt, with it taking on more debt in recent years to fuel expansion.
Bottom Line
Enphase’s earnings outlook has climbed steadily higher and higher over the last several years. Wall Street remains rather bullish on the stock given its current standing in a red-hot industry and its ability to continue innovating in the solar market that has decades of expansion ahead.
Bear of the Day:
Nike, Inc. tumbled after it released its quarterly results on September 29 as it warned Wall Street that soaring inventory would eat away at its profit margins. The sportswear titan, like many others, is struggling to stay ahead of the curve when it comes to consumer demand amid ongoing supply chain bottlenecks.
Nike’s post-earnings release drop is part of a much longer downturn that’s seen NKE shares sink 44% in the past 12 months alongside many other consumer discretionary stocks.
Nike’s Story
Nike remains one of the heavyweight champions of sportswear. The company has continued to adapt and create trends to help fend off improved challenges from Adidas, Lululemon (LULU), and many smaller digital-native brands.
The iconic Swoosh is attached to many of the most popular sports, athletes, and cultural icons on the planet. This helps Nike stand out as one of the most valuable brands, alongside the likes of Coca-Cola and Apple.
Nike continues to invest in its future through multiple shopping apps and its massive, wide-ranging digital marketplace. Nike is all-in on its own e-commerce and direct-to-consumer offerings, having cut ties with many retailers, all of which are great for margins and maintaining its brand cachet.
That said, it’s facing a rough near-term outlook as it continues to find it difficult to navigate the rocky supply chain ecosystem and it’s getting crushed by the strong U.S. dollar. Plus, Nike is finding it somewhat of a challenge to adapt to rapidly changing shopping patterns as more consumers tighten their purse strings.
Nike’s Q1 FY23 (recently-reported quarter) revenue popped by nearly 4% and 10% on a currency-neutral basis. The company direct-to-consumer segments continue to fuel sales growth. Despite its top-line expansion, the firm’s adjusted earnings tumbled 20% YoY as higher costs and surging inventory levels took a chunk out of its profits.
Nike said that its inventories soared 44% to $9.7 billion in the latest quarter, “driven by volatility in transit times in North America, strategic decisions to buy inventory for future seasons earlier, and lower inventory levels due to last year's factory closures in Vietnam and Indonesia.”
Bottom Line
Nike’s consensus earnings estimates have crumbled recently to help it land a Zacks Rank #5 (Strong Sell). NKE’s Shoes and Retail Apparel industry is also in the bottom third of over 250 Zacks industries. And it lands “F” grades for Value and Momentum in our Style Scores system.
Nike’s 1.4% dividend yield is nothing to write home about and it’s still not “cheap” in terms of forward earnings. And Nike is being forced to mark down its offerings heading into the vital holiday shopping season.
Zacks estimates call for Nike’s adjusted FY23 earnings to slide 17% to $3.13 per share on 5% stronger sales. The company is then set to post 9% sales growth the following year and 27% higher earnings to climb above its FY22 levels.
The long-term bullish case for Nike is somewhat firmly intact. Yet, investors might want to stay away from the stock for now given all of the economic uncertainty and inventory setbacks.
Additional content:
Bet on Midstream Stocks to Beat Volatility
Stubbornly high inflation is keeping the broader equity market under pressure. Thus, to rein in inflation, which is at the 40-year high mark, the Federal Reserve is likely to opt for continued large interest-rate increases, thereby raising fears of recession and spurring market volatility. The energy sector is known for its volatile business scenario, and a slowdown in economic activities could significantly dent energy fuel demand.
Companies belonging to the sector have been witnessing a choppy business environment since the onset of the coronavirus pandemic. The initial pandemic period, when there were no vaccines, saw an environment of heightened uncertainties. The commodity’s price plunged to a negative $36.98 per barrel on Apr 20, 2020. However, with the rapid developments of vaccines, which led to the gradual opening of the economies, the pricing scenario of West Texas Intermediate crude improved drastically over time to reach $123.64 per barrel on Mar 8, 2022. Oil price data are per the U.S. Energy Information Administration.
Considering the backdrop, it would be wise for investors to bet on midstream stocks like DCP Midstream LP, The Williams Companies Inc and MPLX LP.
Midstream Energy Players to the Rescue
Although the fate of energy players is highly dependent on oil and gas prices, stocks belonging to midstream space have lower exposure to volatility in commodity prices. This is because midstream players generate stable fee-based revenues since the transportation and storage assets are being booked by shippers for the long term. Thus, their business model is relatively low-risk, signifying considerably less exposure to both oil and gas price and volume risks.
We have employed our Stock Screener to zero in on three stocks belonging to the midstream energy space. While one stock sports a Zacks Rank #1 (Strong Buy), two carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
3 Stocks in the Spotlight
DCP Midstream LP: DCP Midstream is a leading provider of midstream services, having a fully integrated and resilient business model. With 12 billion cubic feet of natural gas storage assets, the master limited partnership has 2.8 billion cubic feet of daily natural gas pipeline capacity. DCP Midstream, with Zacks Rank of 2, strongly focuses on strengthening its balance sheet with the foremost priority of reducing debt load.
MPLX LP: MPLX has ownership and operating interests in midstream energy infrastructure and logistics assets, thereby generating stable cashflows. With a strong focus on returning capital to unit holders, #1 Ranked MPLX announced a repurchase authorization for an incremental $1 billion of units.
The Williams Companies Inc: The Williams Companies is well-poised to capitalize on the mounting demand for clean energy since it is engaged in transporting, storing, gathering and processing natural gas and natural gas liquids.
With its pipeline networks spread across more than 30,000 miles, The Williams Companies connects premium basins in the United States to the key market. With a Zacks Rank of 2 at present, WMB’s assets can meet 30% of the nation’s consumption of natural gas, which is utilized for heating purposes and clean-energy generation.
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Williams Companies, Inc. The (WMB) : Free Stock Analysis Report
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