SolarCity Crashes Over 20% On Poor Guidance Despite Earnings Beat
SolarCity Corp (NASDAQ: SCTY) shares are down nearly 24 percent in Tuesday's after-hours session following the company's fourth quarter earnings report. The solar company reported a Q4 loss of $2.37 per share, a better mark than Wall Street's consensus of a loss of $2.59 per share. Revenues also beat expectations by about $10 million.
Amid disappointing guidance, neither of these data points mattered to investors.
Citing a "lower rate of growth in 2016 than in years past," SolarCity said it forecasts a first quarter EPS range of of $(2.55) to $(2.65), below expectations of $(2.36).
Of note, SolarCity did remark it views the Investment Tax Credit (ITC) extension as a positive for the company, adding that it provides tailwinds to growth. This comes counter to the popularly held view of Axiom analyst Gordon Johnson.
Johnson said in a note last week that he sees pain coming for solar investors who went long after the ITC extension. "With the ITC in place since ’06, its extension, we blv, is not a demand driver, but rather ‘not a demand killer,'" he wrote, adding that there are two more important factors at play for SolarCity: the cost of debt and the cost of capital.
According to Johnson's analysis, both factors are less favorable for solar companies like SolarCity than they've been in the past.
In an email to Benzinga, Johnson explained why any assumptions SolarCity will benefit from the ITC extension are misguided. The company is a "middle man," he said, adding that it does not get ITC funding directly. "They generate the bulk of their revenue from the amortization of loan receivables and the amortization of their leases to customers," Johnson added.
The firm has a Sell rating on SolarCity, along with Sells on JA Solar Holdings Co., Ltd. (ADR) (NASDAQ: JASO), Trina Solar Limited (ADR) (NYSE: TSL) and Yingli Green Energy Holding Co Ltd (ADR) (NYSE: YGE).
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