Enphase Energy double-downgraded by Barclays on possible Section 25D repeal

Investing.com -- Barclays has slashed its rating on Enphase Energy (NASDAQ:ENPH) to Underweight from Overweight, citing the potential repeal of Section 25D, a key tax credit for homeowners purchasing solar systems. 

The firm also cut its price target on the stock by 22% to $40.

“The possible repeal of Section 25D has flown under the radar and is now taking a bite out of ENPH,” Barclays (LON:BARC) analysts wrote. 

Section 25D allows individual homeowners who buy solar and storage systems with cash or loans to claim a 30% tax credit. The credit does not apply to third-party-owned (TPO) systems, which operate under different tax codes.

Barclays says the repeal could drive the residential solar market to become “>90% TPO market starting next year,” which would significantly impact Enphase, a dominant player in the non-TPO segment. 

“As ENPH has been dominant in the non-TPO market and its market share is on the weaker side in the TPO market, we think the elimination of this tax credit negatively impacts ENPH’s outlook.”

While Enphase has been growing its presence among smaller TPO players, Barclays says it remains absent from major installers such as Sunrun (NASDAQ:RUN), the largest TPO operator. 

Barclays added that to win business from such companies, “ENPH would have to compromise on price, which would impact margins.”

Although a reversal of the Section 25D repeal is possible, Barclays said, “it’s not something we are necessarily holding our breath on,” given limited lobbying from individual homeowners and greater influence from utility-scale developers and large TPOs focused on commercial tax codes.