SolarCity Outshining Rivals Ahead of 2Q Earnings

NEW YORK ( TheStreet) -- SolarCity ( SCTY), which recently surpassed the $3 billion market cap milestone, reports earnings after the close Wednesday. Along with monitoring the solar energy provider's second-quarter results, investors will be carefully looking for guidance from management about the remainder of the year.

SolarCity was slipping 2.5% to $44.03 in Tuesday afternoon trading, trimming the stock's meteoric 451% advance since its December initial offering. Analysts are expecting the company to post a loss of 38 cents a share on revenue of $27.44 million, according to a consensus estimate at Yahoo! Finance. For its first quarter of 2013, the company posted a loss of 41 cents a share on $30 million in revenue.

Solar stocks have been performing well recently in anticipation of solid earnings from SolarCity and First Solar ( FSLR). But where First Solar's results rely almost entirely on prices of solar panels and quantities sold in competition with Chinese manufacturers, among others, SolarCity's business actually benefits if solar panel prices drop.

An article in The Economist in November saw the huge potential in solar generally:

... it is in the field of solar energy, currently only a quarter of a percent of the planet's electricity supply, but which grew 86% last year, that the biggest shift of attitude will be seen, for sunlight has the potential to disrupt the electricity market completely.

According to that article, the cost to manufacture silicon voltaic cells per watt has dropped from $76 in 1977, to 74 cents today and will likely continue to fall as manufacturing increases and manufacturing technology improves.

SolarCity doesn't make panels. They buy them. The company's business model is to install solar systems for business and residences and lease its products to customers. CEO Lyndon Rive described SolarCity as "an energy company" in a March interview with Adam Lashinsky on CNNMoney.

"We sell you electricity," he is quoted as saying. "Your utility does exactly the same thing. What they do is they build that infrastructure, they go out and arrange financing beyond the infrastructure and then sell you per kilowatt hour. But you don't think of your utility company as a financing company."

If solar array costs drop, SolarCity can either increase its profit margin or lower customer rates to make it more competitive with traditional utilities.

SolarCity has secured a number of large-scale contracts recently, including a partnership with Honda ( HMC) to create green electricity outlets for their electric car customers. SolarCity is also currently building its first utility-scale project for the Kaua'I Island Utility Co-operative (KIUC), a 12 megawatt plant that presumably will be installed and leased to KIUC who then sell the energy to its customers. The plan is for it to provide 6% of the island's total energy needs (68,000 inhabitants, one article says).

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