Morgan Stanley has doubled down on its bearish view of Enphase Energy, trimming its price target to $16 from $24 after the solar technology company missed third-quarter expectations and issued a weaker-than-expected outlook for the fourth quarter. The bank kept its underweight rating, signaling it expects the stock to lag the broader market.
Enphase, which makes microinverters and home-energy management systems, reported adjusted earnings per share of $0.41 for the third quarter, below the $0.51 that analysts polled by FactSet had expected. Revenue came in at $293.3 million, also short of the $304.6 million consensus. The miss reflects a still-challenging environment for residential solar in the United States, where high interest rates have made monthly loan payments for rooftop systems more expensive for homeowners.
Why demand remains soft
Morgan Stanley analysts said U.S. residential solar demand is still weak, and they also flagged tougher conditions in international markets. The bank pointed to “sell-through” — the pace at which distributors and installers move product to end customers — as a key indicator. Global sell-through rose just 1% quarter over quarter, well below Enphase’s own expectation of 10% growth. In Europe, sell-through fell 12%.
That gap between what Enphase ships and what actually reaches consumers is central to the bank’s caution. When distributors hold excess inventory, they slow new orders, which can make a manufacturer’s reported sales look worse than the underlying demand from homeowners.
Destocking ahead
Looking to the fourth quarter, Morgan Stanley expects sell-through to drop 10% and says Enphase plans to “undership” by about $20 million. That means the company will ship less than what end-market demand would justify, as distributors run down their inventories heading into a seasonally slower first quarter.
This is a classic destocking signal. When the supply chain is absorbing stock rather than replenishing it, a company can post weak revenue and earnings even if rooftop installations are merely flat. For investors, that means near-term results may stay under pressure until the inventory cycle turns and purchase orders start matching sell-through again.
What it means for investors
For everyday investors, the key takeaway is that Enphase’s problems are not just about consumer demand — they are also about how the supply chain manages inventory. Until that destocking phase ends, each quarterly report will be scrutinized for signs that the inventory headwind is easing. The bar for the stock to stabilize remains high, according to Morgan Stanley.
The broader solar sector has been grappling with similar headwinds. High interest rates have raised the cost of financing solar installations, and policy uncertainty in some markets has added to the challenge. While long-term adoption of solar energy is expected to grow, the near-term path is bumpy.
Morgan Stanley’s price target cut is one of several recent analyst moves on companies facing margin or demand pressures. For instance, BofA trimmed its target on Sherwin-Williams citing margin squeeze, and Morgan Stanley has also weighed in on Corpay, noting its growth depends on steady execution. These moves reflect a broader theme of analysts adjusting expectations as companies navigate a mixed economic environment.
Investors should watch Enphase’s fourth-quarter results and management commentary for any signs that destocking is winding down. A return to order growth would be a positive signal, but until then, the stock may remain volatile.
