Shares of SolarCity (NASDAQ:SCTY) shot up 11% on Thursday after a new financing deal from Goldman Sachs (NYSE:GS). SolarCity, which provides solar panels to homes and businesses, will be able to secure additional customers and blow past its guidance for installed products.
The collaboration with Goldman Sachs brings $500 million in financing for homes and businesses. The deal is listed as enough to produce 110 megawatts of solar panel products. In comparison, SolarCity just produced 156 megawatts in fiscal 2012. The deal with Goldman Sachs is the largest ever in the United State for homeowners' rooftops. An extension of a 2012 agreement, the deal has already produced 26 MW of solar panel projects.
Wall Street liked the announcement and you should too. Despite being in only 14 states and having a relatively small market share of available homes, SolarCity continues to accelerate its growth and benefit from financing deals. The company will charge customers no up front costs under the new deal, instead securing "a recurring, predictable cash flow stream". Those words should be music to investors' ears, as it paves the way for guaranteed monthly income down the road.
Back in February, I wrote about SolarCity's deal with Honda Motor Corporation (NYSE:HMC). Under that deal, $65 million was made available by Honda to help finance over 3000 homes and dealerships. Honda saw the deal as a way to help sell its line of alternative energy vehicles and also change its dealerships to solar power to lower monthly utility costs.
SolarCity produced 156 MW of solar panels in fiscal 2012, despite guidance of 146 MW. This was an increase of over 100% from the 72 MW produced in fiscal 2011. In fiscal 2013, SolarCity expects to produce 250 MW of projects, which should be no problem given a strong backlog of projects and the two deals from Honda and Goldman Sachs.
It may seem strange, but shares of SolarCity priced below their IPO range of $13 to $15 range for a remarkable $8. Shares were up their first day of trading and are now up 173% since their IPO back in December. However, shares have plenty of room to run and could be bought today as the perfect long term opportunity.
Consider that SolarCity is still only operating in 14 states. Pushes for alternative energy initiatives could create opportunities in other states, allowing this solar company to enter new markets and create further financing deals.
In the markets it operates in, SolarCity has panels on less than .25% of buildings. This means the company can continue to increase its market share and has not even come close to market saturation. As costs come down with more installs, the company benefits from its large scale size.
In the most recent first quarter, SolarCity installed 46 MW of panels, versus guidance of 41 MW. The company's customer base increased 106% from the previous year. Contracts signed and outstanding for projects increased 16%. Lease revenue was reported as $15.1 million, while System Sale revenue was $14.9 million. Total revenue of $30.0 million represented an increase of 21%. SolarCity is calling for second quarter production of 48 to 53 MW in solar panels. Lease revenue is expected to come in at $16 to $18 million. For the full fiscal year, the company expects to install 250 MW of solar panels. More importantly, SolarCity expects to be positive net cash flow in the second quarter.
As an unprofitable company with a market capitalization of $2.7 billion, shares of SolarCity may look expensive. With the operating structure SolarCity has, general accounting principles make monthly revenue hard to track. The company is on its way to profitability and will continue to beat Wall Street's and its own estimates for new installations and revenue. This is one speculative alternative energy stock that should be in your portfolio.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in SCTY over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.