SolarCity (SCTY) Stock Is Declining Ahead of Third Quarter Earnings Results

NEW YORK (TheStreet) -- SolarCity (SCTY) shares are falling sharply, down 8.1% to $52.36 in trading on Wednesday ahead of the release of its quarterly results as the company expects to post a wider loss this quarter than it did during the same period last year.

The U.S.'s leading residential solar installer said that it expects to lose between $1.10 and $1.20 per diluted share during the third quarter this year, a much wider loss than the 43 cents per share it lost during the same quarter last year.

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Analysts at Thomson Reuters expect the company to post a loss of $1.11 per diluted share on revenue of $60.23 million.

Despite the bleak outlook, the company does expect to see an 83% midpoint increase in the number of megawatts it deploys during the period.

TheStreet Ratings team rates SOLARCITY CORP as a Sell with a ratings score of D+. TheStreet Ratings Team has this to say about their recommendation:

"We rate SOLARCITY CORP (SCTY) a SELL. This is driven by a few notable weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income, generally high debt management risk, weak operating cash flow and feeble growth in its earnings per share."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Electrical Equipment industry. The net income has decreased by 20.8% when compared to the same quarter one year ago, dropping from -$39.46 million to -$47.65 million.
  • The debt-to-equity ratio of 1.48 is relatively high when compared with the industry average, suggesting a need for better debt level management. Along with the unfavorable debt-to-equity ratio, SCTY maintains a poor quick ratio of 0.93, which illustrates the inability to avoid short-term cash problems.
  • Net operating cash flow has significantly decreased to -$36.49 million or 149.27% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • SOLARCITY CORP reported flat earnings per share in the most recent quarter. Earnings per share have declined over the last year. We anticipate that this should continue in the coming year. During the past fiscal year, SOLARCITY CORP reported poor results of -$0.80 versus -$0.56 in the prior year. For the next year, the market is expecting a contraction of 417.5% in earnings (-$4.14 versus -$0.80).
  • In its most recent trading session, SCTY has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. Turning our attention to the future direction of the stock, we do not believe this stock offers ample reward opportunity to compensate for the risks, despite the fact that it rose over the past year.
  • You can view the full analysis from the report here: SCTY Ratings Report
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