SolarCity Corp (NASDAQ:SCTY) shares may have finally flat-lined after a tough day on Thursday. The company suffered from ridiculously high expectations, and investors received a reality check in its latest earnings report. However, this morning shares were close to flat.
Goldman Sachs analysts remain confident in the company’s execution and fundamentals and say that SolarCity was simply suffering from expectations that were too high. They remain Neutral-rated on the company with a $65 per share price target but say they could become “more constructive” on it if this week’s pullback continues for a while.
SolarCity’s results were strong
This week SolarCity Corp (NASDAQ:SCTY) reported solid third quarter results led by higher retained value per watt also lower costs. The company deployed 78 megawatts during the third quarter and saw leasing revenue of $25 million and system revenue of $24 million. Goldman Sachs analysts Brian Lee, Thomas Daniels and Britt Boril report that SolarCity beat their expectations. They had been looking for $23 million in leasing revenue and $18 million in system revenue.
SolarCity reported losses of 43 cents per share, which were better than Goldman Sachs’ estimate of a loss of 51 cents per share and consensus estimates of 44 cents per share in losses.
SolarCity’s guidance was solid too
The company maintained guidance of 101 megawatts for the fourth quarter and expects lease revenue to fall to between $22 million and $24 million due to seasonality. SolarCity Corp (NASDAQ:SCTY) guided for system sales of between $18 million and 422 million and non-GAAP losses of between 55 cents and 65 cents per share. Goldman Sachs is estimating losses of 63 cents per share, while consensus estimates indicate overall expectations of 47 cents per share in losses for the fourth quarter.
Positives and negatives from SolarCity’s report
Lee and his team note several positives in SolarCity’s results, particularly solid execution. One of the most important valuation metrics for the company is retained value per watt, and SolarCity is performing well in this category, posting a 35% increase quarter over quarter. Operational costs fell to less than 60 cents per watt, compared to between 75 cents and 80 cents per watt in the first half of this year. They see more opportunities for these costs to fall further next year as well.
The analysts said their Neutral rating remains because of how high expectations for SolarCity Corp (NASDAQ:SCTY) have been. They note that there was no volume upside given in the company’s volume targets, and clarity regarding timing, costs and growth has been limited. They believe SolarCity shares will keep underperforming for now, but they may turn more positive if the pullback continues in the long term.