Will SolarCity Earnings Keep the Stock on Fire?

SolarCity will release its quarterly report on Wednesday, and for a company that just came public last December, the stock has been hugely successful for investors, having tripled from its first-day trading levels. Yet even though SolarCity earnings won't break even for a long time, the company's growth prospects remain huge, supporting valuations and giving shareholders the potential for further gains if it can keep expanding its reach across the solar industry.

SolarCity has focused on the residential and small-scale commercial market with its solar energy systems. But what has truly revolutionized the business is SolarCity's commitment to help finance solar systems, taking away some of the upfront risk that has plagued homeowners in trying to decide whether to make large capital expenditures in exchange for substantial but uncertain future gain. Let's take an early look at what's been happening with SolarCity over the past quarter and what we're likely to see in its quarterly report.

Stats on SolarCity

Source: Yahoo! Finance. * In two quarters since going public.

When will SolarCity earnings shine more brightly?
In recent months, analysts have widened their loss estimates on SolarCity earnings, with a $0.04 widening of losses projected for the June quarter and a $0.28 increase in losses for the full 2013 year. The stock, however, has continued its high-growth trajectory, pushing higher by nearly 50% since early May.

The big driver for SolarCity's growth came in May, when the company announced a big financing package deal with Goldman Sachs to provide $500 million in capital to help it install another 110 megawatts of solar projects. Given the reluctance of many residential customers to invest their own money upfront, SolarCity's offers of lease and financing packages has been hugely popular, but it requires the company to have sources of cash like the financing that Goldman provided. Indeed, SolarCity's extension of its no-money-down offer to homebuilders and developers likely hinged on the Goldman money.

Still, the need for financing presents challenges for SolarCity investors. In late June, the company boosted its installation target by 20 megawatts to 270 megawatts, but it also announced a convertible note offering to raise $200 million more in funding. That led to a short-term drop in the stock as investors absorbed the potentially dilutive effect of the offering, and although the stock quickly recovered, future cash needs might result in similar hiccups that lead to longer-lasting pullbacks.

Moreover, competition is rising in the residential area. SunPower has noted the value of residential and small-scale commercial installation in its overall business model, and its efficiency advantage in solar modules has given it a big edge over other solar players in the industry. SunPower also has a lower cost of capital than SolarCity, giving it access to the funds to expand more quickly. Still, with a big first-mover advantage, SolarCity seems likely to fend off even giant First Solar if it ever decides to make a play toward the smaller-scale market -- a prospect that seems unlikely given its current emphasis on large-scale projects.

In the SolarCity earnings report, watch to see how quickly the company is able to boost its installation base. Further upward revisions to installation goals will be key in determining whether the stock can keep up its strong performance since its IPO.

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The article Will SolarCity Earnings Keep the Stock on Fire? originally appeared on Fool.com.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Goldman Sachs. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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