Gordon Johnson Sees 'Sizeable' Downward Guidance Revision From SolarCity Imminent

Axiom Capital's Gordon Johnson says a 'sizeable' downward revision from SolarCity Corp

to its second quarter/2016 guidance is imminent due to order cancellations. Earlier this month, SolarCity provided second quarter EPS guidance of ($2.80)-($2.70) and said it expects sales of $135 million to $143 million. Johnson, who has a Sell rating on SolarCity, said the company has overstated backlog by 40 percent, on average since first quarter 2014. The analyst also highlighted that the company's 160MW in first quarter bookings include potentially canceled MWs related to the recently revised Nevada net metering rules, and potentially canceled MWs tied to the recently reworked Solar River Project Utility's (SRP) policy for net metering. Thus, the bookings of the renewable energy company fell to 160MW in first quarter 2016 from 380MW in the fourth quarter of 2015. Considering lower bookings, Johnson sees "SCTY's decision to include pre-existing/proposed Nevada/SRP bookings in its 1Q16 backlog as highly indicative of dubious backlog." Though, the solar company has not disclosed what percentage of its backlog is Nevada/SRP-linked, the analyst sees these questionable bookings consistently prevented the company to convert about 40 percent of current quarter bookings into forward quarter installs. "In this fashion, applying a 30% discount to SCTY's history (since 1Q14) of translating just 60% of its bookings into forward qtr installations/sales, we lower our 2Q16/2016 installation ests. to 133MW/616MW from 295MW/1.1GW prior," Johnson noted. "With SCTY's official guidance for 2016 installations at 1.05GW, we believe, as it becomes clear to Consensus that this number will fall ~50% short, acute downside will push the company's discount rate up," Johnson added. At the time of writing, shares of SolarCity fell 0.88 percent to $20.32.