SolarCity Must Do More Than Ever to Meet 2016 Target After Miss

  • Quarterly installation miss and lower forecast raise concerns
  • Company affirmed 2016 goal of adding 1.25 gigawatts of panels

SolarCity Corp. will have to install an average of 357 megawatts of solar systems in each of the next three quarters, more than ever before, to meet its full-year guidance. Analysts are divided over whether the company will pull it off.

The biggest U.S. rooftop solar company expects to install 1.25 gigawatts of panels this year, reaffirming a target set in October, according to an earnings statement released Tuesday. That’s after fourth-quarter installations were 8 megawatts less than forecast, and the San Mateo, California-based company said the first-quarter number will decline 34 percent to 180 megawatts.

This will require the company to surpass the 272 megawatts it added last quarter. While that’s a record, it fell short of SolarCity’s forecast for 280 megawatts to 300 megawatts. And that growth will need to come with low costs because Chief Executive Officer Lyndon Rive has repeatedly said the company will deliver positive cash flow by the end of the year.

“Nothing they said yesterday made me question the 1,250 megawatt full-year guidance,” Pavel Molchanov, an analyst at Raymond James Financial Inc., said in an e-mail Wednesday. The company has a history of delivering strong year-over-year growth, and the current installation target is about 40 percent higher than 2015, he said.

Growth Rates

“That’s a sizable growth rate by any standard,” Molchanov said, though it’s slower than the 73 percent last year “and the near-doubles in 2013 and 2014.”

The expected decline in the current quarter isn’t a major concern to Patrick Jobin, an analyst at Credit Suisse Group AG. Installations are typically slower this time of year when cold weather hinders workers. And with consumer demand for rooftop power continuing to grow, SolarCity should have plenty of business for the rest of the year.

Jobin is also keeping an eye on the company’s costs as it seeks to become cash-flow positive, a strategy that may mean focusing on more profitable customers.

“SolarCity is making a concerted effort to seek value over volume,” he said.

The missed installation figure last quarter and the slower growth rate for this year has irked investors that had grown accustomed to the company’s rapid, consistent expansion, Vishal Shah, an analyst at Deutsche Bank AG, said in research note Wednesday.

Management Credibility

“Management credibility is at risk,” Shah wrote. He expects SolarCity to meet the installation guidance, based on bookings in the fourth quarter that rose to 360 megawatts. The outlook for 2016 “is supported by strong visibility from the commercial segment and robust quarterly booking run-rate over the past few quarters.”

Gordon Johnson, an analyst with Axiom Capital Management, is less confident in the company’s ability to deliver, in part because of an investor day in mid-December when executives were still saying SolarCity would meet its fourth-quarter target.

He “firmly” expects SolarCity to miss its full-year target after the company “gave Q4 guidance on December 15, and they still missed it,” he said in an interview.

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