Any Silver Linings? Solar City's Q1 Had 'Plenty For The Bears'

SolarCity Corp SCTY reported its 1Q16 results with the revenues ahead of the consensus and estimate and the non-GAAP EPS missing expectations.

Avondale Partners’ Michael Morosi maintained a Market Outperform rating on the company, with a price target of $40.

There Is A Silver Lining

“SCTY's 1Q results and guidance have plenty for the bears and just a few silver linings,” Morosi mentioned, while adding, “On the upside, installations came in well ahead of estimates, even after adjusting for 14MW of installations that were pulled forward in the Q.”

On the downside, however, the analyst pointed out that cost per watt significantly increased quarter on quarter, driven in part by seasonality-related deleveraging of SG&A, although it validated a key factor in the bear argument.

According to the Avondale report, “Asset monetization continues to be a moving target, though the company's performance on cost/W points to limited profitability under most any discount rate / renewal value scenarios.”

2Q Guidance

The company guided to 2Q16 non-GAAP EPS ahead of the consensus, although the total revenue guidance range was below the consensus expectations.

SolarCity also guided to revenue from periodic billings at $105-$108 million, with solar energy systems and components sales at $14-$16 million. Operating lease prepayments are expected at $16-$19 million.

“Management guided installations of 185MW, well below consensus, as 14MW expected to be delivered in 2Q were completed ahead of schedule in 1Q16,” the analyst stated.