Gordon Johnson Sees SolarCity Imminent Downside 'Likely', Sees Outsized Risk To Incremental Guidance Cuts

• SolarCity Corp SCTY shares have lost 48 percent since January 4, and are currently trading close to their 52-week low of $24.
• Axiom’s Gordon L. Johnson II maintained a Sell rating for the company, while putting the price target under review.
• The company’s disappointing 4Q15 results and low rate of installations indicate increased risk of incremental guidance cuts for 2016, Johnson stated.

SolarCity reported disappointing 4Q15 revenues and EPS of $115.5 million and ($2.25), respectively. The company also reported lower-than-guided installations of 272 MW, besides guiding to 1Q16 installations of 180 MW, which includes 15MW of East Coast projects that were unexpectedly pushed into 1Q16.

Analyst Gordon Johnson mentioned that by applying SolarCity’s average 4Q to 1Q seasonality in FY143 and FY14, its 1Q16 organic installations should be 226MW instead of the guided 165 MW, indicating a miss of 26.9 percent.

Although the company reiterated its full-year FY16 installation guidance of 1.25 GW, the 4Q15 installation miss and the removal of 80 MW of Nevada projects point towards incremental guidance cuts, Johnson commented.

SolarCity has extended MyPower loans at 4.5 percent interest to investors for 30 years. Johnson pointed out that the company is not only selling these loans at a loss, but also has a low chance of collecting about 33 percent of these payments. Adverse net metering rulings in Nevada, California and Hawaii are also expected to restrict SolarCity’s growth in the future.