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Why Shares of Vivint Solar, Inc. Popped 14% in December

Travis Hoium, The Motley Fool

What happened

Shares of residential solar installer Vivint Solar, Inc. (NYSE: VSLR) jumped 14.1% in December, according to data provided by S&P Global Market Intelligence, after the worst-case scenario failed to come true during the tax negotiations. This wasn't a bullish month for Vivint's fundamentals, but was an acknowledgement that the business will be able to continue as it was operating previously.

So what

There were provisions written in the Republican tax bill that would have made it difficult for solar companies to raise tax equity -- financing that allows a profitable company to use tax deductions against their tax bill. But the worst provisions were pulled from the bill at the last minute, which was a relief for solar installers.

A house with solar pannels on the roof.

Image source: Getty Images.

The lower tax rate will make tax equity less valuable, so the bill wasn't all good, but it could have been worse for solar companies.

Now what

The next challenge facing Vivint Solar is potential solar tariffs due to come out later this month. If high tariffs are placed on solar imports, costs for solar installations could increase, which would either force Vivint Solar to raise prices or squeeze its margins. Look for early 2018 to be another wild year for Vivint Solar, despite its improving operations the last few quarters.

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Travis Hoium has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.