SolarCity Corp: After 24%-Plus Plunge, Could SCTY Be a Value Buy?

SolarCity Corp (SCTY) topped earnings and revenue estimates for its recently completed fourth quarter. That’s the good news. The bad news? Nobody cared.

SolarCity Corp: After 24%-Plus Plunge, Could SCTY Be a Value Buy?All eyes remained fixed on disappointing 2016 outlook, which sent SCTY stock crashing as much as 31% in wake of the news.

So is this just a stroke of temporary bad luck, or is it the shape of things to come? Investors are currently leaning toward the latter, seeing how industry peers like SunEdison (SUNE) and SunPower (SPWR) have hit a similar headwind.

Then again, one could argue SolarCity didn’t do anything to help itself or SCTY shares.

SolarCity Earnings

In its fourth fiscal quarter of 2015, solar panel middleman and financier SolarCity lost $2.37 per share on revenue of $115.5 million. Both figures topped analyst estimates: The pros called for a loss of $2.59 per share and a top line of $105.6 million.

Last quarter’s figures also exceeded its own guidance for a per-share loss of between $2.60 and $2.75 on revenues between $100 million and $108 million.

Where SCTY missed the more meaningful mark was on the installation front. It only installed 272 megawatts worth of solar panels in the fourth quarter, failing to reach its own guidance of between 280 MW and 300 MW.

The outlook for the current quarter was similarly lackluster. The company anticipates a loss of between $2.55 and $2.65 per share for Q1 — against forecasts for a per-share loss of $2.36 — on the heels of 180 MW worth of solar panel installations. That would represent an 18% year-over-year improvement in total installations, although that growth pace is still a far cry from the 73% growth in installations the company mustered in all of 2015.

In spite of all this, CEO Lyndon Rive remains confident that total installations will increase by 40% this year.

The Dust Is Still Settling

In most regards, the recent upheaval of the solar power industry’s key players, and of SCTY in particular (SolarCity stock is down 65% from December’s peak, but rallied 132% into that peak from November’s low), could have been expected. While the science of solar power may have finally been ready for prime-time a few years ago, the necessary math and money was not.

A large part of the reason SCTY’s missed the Q4 installation mark and issued tepid guidance for installation in the first quarter stems from the decision to abdicate its business in Nevada. The state’s regulators changed their policy regarding compensating rooftop solar system owners selling surplus electricity back to the grid, weakening the benefit of owning such systems.

Nevada’s changing stance on the treatment of solar power customers is a microcosm of the Federal government’s similar program. While the solar panel Investment Tax Credit was extended all the way through 2019 and will then gradually taper away through 2021, it’s still not clear to what extent it has actually helped and will help solar power system installers like SolarCity.

The extension was counted as a victory, but the tax credit itself doesn’t inherently make solar panels cost-effective for buyers or sellers. Just ask SunEdison shareholders, who have continued to suffer despite the renewed ITC rules as it figures out how to make solar power a profitable business rather than just an idea.

This is at least partially the reason for the SCTY’s shift from growth to profitability. It’s not been an easy transition, though.

Bottom Line for SolarCity

For the record, Rive thinks Nevada will rethink its current stance on paying for rooftop-system-generated solar power, restoring the benefit of such systems and making them marketable to consumers again. Although he didn’t explicitly say, it was suggested SolarCity would re-enter that market if and when it became worth it again.

Regardless of how it all shakes out, the Nevada impasse and the sunset clause in the ITC — not to mention the sheer fact that financing solar power systems remains overly complicated — makes SCTY tough to own for the long haul.

On the flipside, for traders that can get on and off a horse as the rhetoric for a particular stock changes, Wednesday’s plunge in SCTY stock may have set up an attractive bounce opportunity.

Just don’t get married to it, as it could be years before consumers, manufacturers, installers and regulators figure out some math that works for everyone.

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

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