SolarEdge stock falls after weak guidance. Why analysts are still optimistic.

Inverters are a device that converts electricity into usable energy for the grid.

“The U.S. residential solar market is currently experiencing headwinds, primarily related to higher interest rates,” CEO Zvi Lando said in the earnings release.

It is the forecasts for the third quarter that spooked the markets. Shares of SolarEdge fell 17% to $198.12 after the company said it expects revenue between $880 million and $920 million, well below Wall Street estimates.

The main driver behind the weak guidance? An inventory build thanks to a drop in demand, analysts at Susquehanna wrote in a Tuesday report. In addition, the company expects to ship fewer batteries next quarter “as battery shipments have exceeded their inverter supply and need to catch up.” The analysts maintained their positive rating on the stock, but lowered their price target to $305 from $365.

Analysts at Guggenheim struck a similar tone in a report Wednesday, acknowledging the disappointing guidance. “Our more optimistic outlook was wrong, but we still believe SEDG is the best way to participate in distributed solar growth,” the analysts wrote. They maintained their Buy rating but lowered their price target to $290 from $400 and lowered estimates.

If all of this guidance sounds familiar, that’s because last month, solar industry competitor Enphase Energy ( ENPH ) also offered weak revenue outlooks for its third quarter. The company said it would cut shipments to address a build-up in inventory that its CEO Badrinarayanan Kothandaraman said can be traced to weak demand for solar equipment in the United States as high interest rates deter customers from installing the systems.

It’s been a tough 2023 for solar stocks. Into Wednesday’s trading session, shares of SolarEdge and Enphase are down 29% and 46%, respectively, this year.

Write to Emily Dattilo at emily.dattilo@dowjones.com