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SolarCity (SCTY) Q2 Earnings: What's Ahead for the Stock?

Zacks Equity Research

Solar major SolarCity Corp. SCTY is set to release second-quarter 2016 results after the market closes on Aug 9. In the preceding quarter, the company delivered a negative earnings surprise of 11.30%. Let’s see how things are shaping up for this announcement.

Factors at Play

During its first-quarter conference call, SolarCity said that, customer acquisition costs were on the rise due a number of headwinds, which should, however, decline significantly in the second quarter.

Further it stated that it expects GAAP revenue in the range of $105–$108 million, operating expenses in the $240–$250 million band, and non-GAAP loss per share of $2.70–$2.80 for the second quarter.

Meanwhile, SolarCity recently announced the installation of 201 megawatts (“MW”) during the second quarter, which was higher than its expectations of installing 185 MW. The figure also increased from the year-ago installations of 189 MW primarily on the back of improvements in sales process and the introduction of a new loan offering that commenced in the second quarter.

However, for 2016, SolarCity now expects to install 900–1,000 MW of rooftop solar panels, down from its prior guidance of 1,000–1,100 MW. The revision was due to lower bookings in the first half of the year.

The Zacks Consensus Estimate for the company’s revenues is pegged at $134.6 million for the second quarter. This reflects an almost 30.9% increase on a year-over-year basis. Meanwhile, our estimate for the bottom line stands at a loss of $2.47, reflecting a 53.4% decline.

Notably, on Aug 1, Tesla TSLA inked a deal to acquire the company for $2.6 billion in an all-stock transaction.

SOLARCITY CORP Price and EPS Surprise


Earnings Whispers

Our proven model does not conclusively show that SolarCity will 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. That is not the case here as you will see below.

Zacks ESP:  The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -3.24%. This is because the Most Accurate estimate stands at loss of $2.55, while the Zacks Consensus Estimate is pegged at a loss of $2.47.

Zacks Rank: Though SolarCity’s Zacks Rank #3 increases the predictive power of ESP, we need a positive ESP to be confident about an earnings beat.

Conversely, 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

Here is a stock in the solar industry worth considering as our model shows that it has the right combination of elements to post an earnings beat this quarter:

Vivint Solar, Inc. VSLR has an Earnings ESP of +5.17% and a Zacks Rank #3. The company is scheduled to release second-quarter results on Aug 8.

A Peer Release

First Solar Inc. FSLR reported second-quarter 2016 earnings of 87 cents a share, beating the Zacks Consensus Estimate of 58 cents by 50%. The reported number also surged 67.3% from the prior-year figure of 52 cents per share on the back of higher sales and gross profits.

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TESLA MOTORS (TSLA): Free Stock Analysis Report
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SOLARCITY CORP (SCTY): Free Stock Analysis Report
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