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SolarCity (SCTY): What to Expect from this Earnings Season?

Zacks Equity Research

SolarCity Corp. SCTY is set to report third-quarter 2015 results after the market close on Oct 29, 2015. Last quarter, it posted an earnings surprise of 0.00%. Prior to that, the company has topped estimates in the three preceding quarters, with an average beat of 7.66%. Let’s see how things are shaping up for this announcement.

Factor to Consider

SolarCity, the largest U.S. rooftop solar installer, is currently pursuing multiple growth ventures and marketing ploys to strengthen its presence across the nation. The company has indeed been ramping up its business at an unprecedented rate.

During the third quarter, it also made its first move out of the domestic market with the acquisition of Mexico's ILIOSS, a commercial and industrial solar developer, for $10 million in cash plus additional earn-outs based on performance. Mexico has high electricity rates, encouraging solar economics and robust solar resources, making it one of the most promising markets in the world.

For the third quarter, SolarCity expects to install approximately 260 megawatts, which translates into a 90% growth rate year on year. On the second quarter earnings call, the company announced that it had entered the third quarter with record bookings with July remaining very strong.

The company expects a better Q3 compared with the preceding quarter focused as it is on rapid growth, cost curtailment and driving higher equity returns for its shareholders.

However, one shouldn’t ignore the fact that the company has failed to earn profits for 11 consecutive quarters while its operating expenses have risen significantly. SolarCity also faces intense competition from other solar energy providers, such as, First Solar Inc FSLR and SunPower Corp SPWR.

Zacks Model Shows Unlikely Earnings Beat

Our proven model does not conclusively show that SolarCity is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

Earnings ESP: SolarCity has an Earnings ESP of 0.00% as the Most Accurate estimate and the Zacks Consensus Estimate both stand at a loss of $1.94.

Zacks Rank: The company carries a Zacks Rank #4 (Sell). As it is, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

A Stock to Consider

Investors may consider JinkoSolar Holding Co., Ltd. JKS in the solar space, as the company has the right combination of a positive Earnings ESP and a favorable Zacks Rank. JinkoSolar’s Earnings ESP of +26.80% and a Zacks Rank #3 point toward a positive earnings call when it’s scheduled to release its quarterly results on Nov 19, 2015.

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