SolarCity missed expectations in last night’s earnings report, and shares plunged as a result, falling as much as 7.01% to $53.11 per share during regular trading hours today. The solar panel system installer posted GAAP results and first quarter guidance that were a bit lower than the consensus estimate.
In the wake of that earnings miss, JPMorgan analysts have slightly reduced their price target for SolarCity.
SolarCity’s earnings mixed
In a report dated Feb. 18, analysts Paul Coster, Mark Strouse and Paul Chung reiterated their Overweight rating but trimmed their price target from $72 to $70 per share. The reason was a slight decrease in their estimates as well due to “uncertainty associated with new product offerings.”
They noted that delays in SolarCity’s commercial segment were to blame for the lower than expected GAAP results. They said the weak guidance was due to lower than expected revenue from systems sales and seasonality.
However, they point out that the company’s retailed value of $2.589 billion was up 19% quarter over quarter and 146% year over year. It was also in line with their expectations of $2.502 billion after factoring in the MyPower portion.
SolarCity noted a 2% decline in retained value per watt due to a greater than expected mix of commercial megawatts and residential megawatts in the Northeast. The company significantly missed its guidance for megawatt deployment, however, coming in at 176 megawatts, compared to management’s guidance of between 179 and 194 megawatts. Commercial project delays were to blame for that miss.
Do falling gas prices affect the solar industry?
Shares of Tesla Motors, of which SolarCity Chairman Elon Musk is CEO, have been pummeled by falling gas prices recently, and it’s worth questioning whether SolarCity’s weak results were also the result of falling gas prices. Of course solar power is not as correlated with gas prices as electric vehicles are, but natural gas prices could still have an impact on the company’s sales.
In a report dated Feb. 17, Goldman Sachs analysts Brian Lee, Hank Elder and Kensey Berry said they still see savings from solar energy even if gas was free. They have a Buy rating and $88 per share price target on SolarCity. Here’s a look at the value proposition they estimate for SolarCity customers (All charts and graphs in this article are courtesy Goldman Sachs):
In their estimates, solar power can save consumers about $15 to $20 off a typical $150 to $200 monthly electric bill. They point out that as gas prices fall, utility rates could decline as well, which reduces the cost savings of solar power.
They add that the result could be pressured margins at SolarCity and other solar power companies because they’re forced to lower prices to stay competitive. They also see the potential for slowing growth because the savings are less attractive.
But because the impact of savings on residential utility bills is so small, they don’t see a huge impact of lower gas prices on the solar industry. They estimate that only about 15% of retail utility rates are exposed to fuel costs, which would mean only a 2% decline in utility rates.
And even with gas at 25 cents per MMBtu, solar power customers could still save between $5 and $10 per month, they estimate. Here’s a look at their estimates for how declining gas prices could impact potential savings of SolarCity customers:
Clearly, SolarCity customers would still have about the same amount of savings on their utility bills een as gas prices decline.
“While down substantially from current, this would still suggest cheap gas will not render rooftop solar uncompetitive and could have a more muted impact on solar fundamentals than expected,” the Goldman Sachs team wrote.