SolarCity Corp (SCTY) Earnings: “negative, but house not on fire”

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SolarCity Corp (SCTY) earnings were a disaster to say the least and investors were not impressed. Shares tanked 33.21% to $26.35 in after-hours trading. As analysts from Barclays noted: SCTY announced 4Q15 results with 4Q15 installations and 1Q16 installation guidance below our forecasts.  While installations costs declined faster than expected, we see little room for disappointment given the markets intense focus on funding needs and funding costs given current market conditions.  While we are optimistic about near-term demand driven by the ITC extension and CA net metering 2.0, roof-top residential solar is a fragile business models that require constant financing to generate back-dated cash-flows for shareholders. The 10-Q is expected to be filed tomorrow.

Indeed, it has not been a great week for CEO Elon Musk, as we noted early:

However, SolarCity Corp management was upbeet on the call stating:

Overall the year was a great year and we had 73% growth. That reduced our cost to $2.71 a watt. We clearly now have the lowest cost in the industry. For the first time in the Company’s history, the asset financing that we get is higher than the actual cost of the developing end. So, intentionally the development cost is cash neutral and were developing this long return revenue.

For the year, this is the most important metric — we created $740 million of value, which is — tax and debt. In total we have over $2 billion. And once again, on that $2 billion number that is the recurrent revenue subtracting all of the O&M, all the fees, that’s the net amount.

Analysts from Credit Suisse did not buy all of those arguments, stating in a note to clients:

Bottom line – negative, but house not on fire: A bad market for a modest miss. This evening SCTY reported volumes that missed guidance and our estimate by 6%, attributed to C&I delays and Nevada, and guided to a weaker-than-expected Q1 but retained 2016 guidance. While the company made considerable progress on lowering costs, enabling the critical threshold of raising more capital than upfront costs, the volume miss is going to drive negative sentiment on the demand environment (despite positive indicators) and severely harm management’s credibility in guidance setting. Additionally, attempts for increased transparency will likely be perceived negatively given modified or omitted metrics. Given the lower volume outlook, and taking a more conservative stance on growth, we lower our DCF-derived Target Price to $89 (from $124). We lower our 2016 volume guidance to 1,206 MWs, consequently our 2016/17 estimates are reduced to ($7.49)/($6.33).

Analysts from Canccord were slighty more positive on SolarCity Corp, opining:

Now that the ITC has been extended, SolarCity exists in a much more solar-friendly world. This means that SolarCity’s strategy is slightly changing, but the company maintains its 2016 growth and cash flow guidance. Although several states need to battle it out over net-metering, we believe net-metering regulations on the average will be more favorable (e.g. California) than draconian (e.g. Nevada). That being said, the loss of operations in Nevada was certainly felt in the quarter’s results and Q1/16 guidance. We continue to maintain our positive stance on SolarCity’s brand, channel, scale, and first mover advantage, which should all play a large hand in helping the company achieve its cost and cash-flow break-even goals. However, we also recognize the growing execution risks and monetization hurdles that the company still faces. We note that the SCTY sell-off seems steep given retained value metrics and feel it is not warranted absent a complete dry-up of monetization options–an event we don’t see occurring. As a result, on a valuation basis we maintain our BUY rating and lower our price target to $40.

Whoever, is right the fate of SpaceX could bet tied to SolarCity Corp. As one astute observer notes:

 

SolarCity Corp

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