Investing.com -- Shares in SolarEdge (NASDAQ:SEDG) fell more than 4% Thursday after the stock got downgraded at Guggenheim from Neutral to Sell, with a new price target of $10.

The firm's revised valuation suggests an enterprise value for SolarEdge of approximately $400 million, a significant decrease from the current $983 million. This adjustment reflects Guggenheim's view that SolarEdge is unlikely to achieve positive EBITDA in the upcoming year.

The downgrade is based on Guggenheim's updated cash flow and earnings projections for SolarEdge, which apply a 10x EV/EBITDA multiple to their initial 2026 outlook. This outlook anticipates $1.6 billion in revenue and a 2.5% EBITDA margin.

Guggenheim's revenue assumptions for 2024 and 2025 remain the same, but their estimates for 2025 fall below the consensus for both revenue and earnings.

Despite SolarEdge's competitive position in commercial markets, Guggenheim notes the company's challenges in European residential markets due to aggressive Chinese suppliers.

“Responding competitively is likely to require more than price-cutting, in our view — a more fundamental reassessment of the company’s product lineup in Europe is needed, which is something that SEDG pointed out to us in our Anaheim meeting recently,” Guggenheim analysts said.

In the U.S., Guggenheim anticipates that both SolarEdge and Enphase Energy (NASDAQ:ENPH) may lose market share to Tesla’s Powerwall 3 in the storage-attached segment. The firm suggests that the market may underestimate the potential increase in the attach rate as prices continue to decline.

SolarEdge's exposure to the large-developer market, particularly through its relationship with Sunrun (NASDAQ:RUN) could result in a greater impact from Tesla (NASDAQ:TSLA)'s advancements.

Guggenheim also raises concerns regarding SolarEdge's liquidity. While the company can monetize its 45X credits, which Guggenheim has factored into their analysis, the firm remains skeptical about the company's cash flow prospects.

SolarEdge's Q2 call had indicated an expectation of negative free cash flow in Q3 of this year, with an improvement in Q4 and a return to positive cash generation in the first half of 2025. However, Guggenheim's model shows continued cash burn through the next year.

Finally, SolarEdge's $350 million convertible bond due next year poses a significant risk to its liquidity.

Guggenheim warns that SolarEdge's cash reserves could fall below $300 million in Q3 of next year, which is considered dangerously low for a company of its size. The firm believes that raising additional capital would be a prudent move for SolarEdge while the option is still available.