SCTY Stock: What to Expect from SolarCity’s Earnings

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For investors in residential solar installer, SolarCity Corporation (NASDAQ: SCTY), the past three months have certainly been a roller coaster ride.

solar city-logo-scty-stock-185Several new growth initiatives were announced during that time, including everything from new financing deals to moving beyond being just an installer of panels. And now that SCTY is scheduled to report earnings after the bell today, we should see the beginning results of those programs

The question is: Will those results be good or bad?

All in all, this quarter’s earnings report could be a major “make or break” moment for billionaire Elon Musk’s solar pet-project.

Here’s the InvestorPlace earnings preview for SCTY earnings.

SCTY: Long On Growth, Short On Higher Costs

The basics of SCTY’s earnings can be summed up in one word: change. More specifically, SolarCity has undergone a complete change in its businesses model.

SolarCity made a name for itself as a residential and roof-top solar installer. Unlike rivals such as First Solar Inc. (NASDAQ:FSLR) or SunEdison Inc. (NASDAQ:SUNE), SCTY focused on just the installation-end of the solar value chain.

The firm didn’t make panels or solar modules, which gave it an edge when it came to pricing. Basically, it could just pick and choose whatever panels were the cheapest and profit.

However, over the quarter, SCTY began the transition to an all-around solar play, adding panel producing capabilities to its roster. SolarCity is leasing factory space in California that once belonged to failed solar-panel maker Solyndra Inc. and is currently constructing a 1 GW manufacturing facility in the Buffalo, New York.

These two efforts follow up SolarCity’s purchase of high-efficiency solar panel start-up Silevo.

Adding manufacturing to its mix might actually be great for SCTY in the long term, as Silevo’s panels have the potential to be some of the world’s most efficient. When SolarCity bought them, their panels were rated at 21% efficiency. That number is pretty close to industry leader, SunPower’s (NASDAQ:SPWR) 24% efficient Maxeon cells. Both are substantially better than the current workhouse commodity solar panels that SCTY installs today, and they could give SolarCity an edge now that new rivals are entering the rooftop solar market.

The Downside of SCTY’s New Business

These efforts are pretty darn expensive. For the last reported quarter, early expansion caused operating expenses jump 119% year-over-year to more than $100 million. With similar expansion plans unveiled during the last quarter, analysts predict that SolarCity should see another quarter of losses — the ninth in a row.

According to an analyst poll by FactSet, SCTY should report a net loss of $119 million or $1.26 per share. Those numbers compare to a loss of just $40 million or 46 cents per share in the same quarter a year earlier. That increased loss can be attributed to the shift in business model, which may pan out in the long term.

However, in the short term, investors should expect SolarCity to keep losing money, as the solar firm’s guidance suggests an adjusted loss of up to $1.35 per share.

What could trigger the additional losses? More shifts in how SolarCity conducts business.

In addition to now producing panels, SCTY has moved from a lease-oriented business model to one where it sells residential solar projects and provides loans for buyers. During the quarter, SolarCity announced plans to offer loans to homeowners for solar systems under a new program called MyPower. The firm also partnered with Bank of America Corporation (NYSE: BAC) to finance new projects.

The switch from leasing to loaning outright will completely change SCTY’s balance sheet. One of the main criticisms before was that SolarCity was similar to a bank or black-box financial firm with regards to its leasing. Having a portfolio of MyPower loans on its books makes it even more like a bank and could be problematic if these loans go sour.

SCTY — A (Potentially) Bright Future

For SolarCity, its next earnings report will be the first under the company’s new transformation. SCTY will be a solar panel producer rather than a simple installer, which changes the dynamic significantly. Ultimately, that could be a very good transition as it can now offer more efficient systems to consumers, hopefully putting it ahead of new residential solar entrants.

The changes should be great news for the long term, but in the short run, investors shouldn’t expect much in the way of profits at SolarCity. In fact, SCTY will probably continue to lose money over the next few quarters until its transformation is 100% complete.

SCTY stock is already way below its former highs, but could sink a bit further on the earnings announcement. Investors looking for an interesting growth opportunity in the solar sector have a good opportunity with SolarCity. Just don’t expect a dividend anytime soon.

As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.

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Aaron Levitt is an investment journalist living in Ohio. With nearly two decades of experience, his work appears in several high-profile publications in both print and on the web. Also likes a good Reuben sandwich. Follow his picks and pans on Twitter at @AaronLevitt.


Article printed from InvestorPlace Media, https://investorplace.com/2015/02/scty-stock-solarcity-earnings/.

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