Enphase Energy soars 21% after JPMorgan defends the company from a scathing short-seller report and says the stock has 48% upside
- Enphase Energy soared 21% on Thursday, a day after Prescience Point Capital Management issued a short-seller report that sent the stock plummeting 26%.
- JPMorgan said in a note published on Thursday that Enphase Energy's recent sell-off represents a "buying opportunity" and issued a $67 price target, representing potential upside of 48% from current levels.
- The bank thinks the primary argument of the short report "can be explained" and has "increased conviction that the stock should recover" after having discussions with Enphase's management team earlier today.
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Enphase Energy soared as much as 21% on Thursday after JPMorgan defended the company from a short-seller report released on Wednesday. The firm argued that "the primary arguments of the short report can be explained."
In the report, Prescience Point Capital Management alleged that Enphase "fabricated" much of its revenue and expected the stock to eventually be delisted. Prescience Point is short shares of Enphase Energy.
That spurred a 26% decline for Enphase on Wednesday.
But JPMorgan sees yesterday's sell-off as a "buying opportunity" for investors, and says it has "increased conviction that the stock should recover" after talking with management of Enphase earlier today. JPMorgan issued a 2021 price target of $67, representing potential upside of roughly 48% from current levels.
JPMorgan reported that Enphase stated it "is not stuffing channels with inventory" and that recent channel expansion drove unit shipments to exceed unit installations. Enphase cited data from Wood Mackenzie that showed Enphase's market share in the US residential solar market increased to 38.3%, from 27.2% in the previous year, according to the note.
JPMorgan said recent improvements in Enphase's margin was driven by "diligent customer-by-customer pricing, cost containments, elimination of single-source suppliers, product improvements and volume benefits."
Additionally, the bank pointed to Enphase's cash flow as disputing the biggest claim in Prescience Point's short report.
"We believe investors can view the cash generation as an indication of true business trends and a rebuttal against the short report's alleged impropriety of deferred revenue recognition," JPMorgan said.
The firm concluded that Enphase has $200 million remaining in its share repurchase program, suggesting that the solar company may buy back its own shares once its current earnings blackout period ends.
Shares of Enphase Energy traded up as much as 21% on Thursday, to $47.19. Short interest in shares of Enphase Energy stood at 11.6% of shares outstanding on Thursday, according to data from Shortsqueeze.com
