A Bull Previews SolarCity Earnings: Significant Execution Questions Need To Be Answered

Oppenheimer’s Colin Rusch expects SolarCity Corp SCTY to post “relatively light” results for 1Q16, while reaffirming its FY16 guidance.

The analyst maintained an Outperform rating on the company, with a price target of $54.

Execution

With “solar earnings starting in earnest,” Rusch believes that a critical variable for SolarCity would be how it refinances assets in future.

“YTD, the company has completed two securitizations, which were priced at levels that did not impress most investors,” Rusch mentioned, while noting that the company “has a compelling opportunity in front of it.”

The analyst also noted that SolarCity has starting pushing through small increases in price at the beginning of 2016. However, this strategy could change, given that the extension of the ITC has removed one of the key levers to drive sales.

Tailwind

Rusch believes that supply chain could prove to be a potential tailwind for the company, with module and inverter suppliers continue to strive to maintain share at SolarCity.

“We are expecting to see some equipment cost benefit in 1H:16, but expect more as modules that avoid import duties become more available,” the analyst stated, while adding, “We also would not be surprised by a mid-year price reduction from inverter suppliers.”

Other Issues

Rusch also mentioned that an update on the Silevo factory ramp and its financing was awaited. The analyst believes that there could be new hurdles for this plant.

In addition, the company’s recent joint filing in New York might imply “a compromise path forward on net metering.”