Solar City Earnings And How The Giga Factory Could Energize The Industry

| About: Tesla, Inc. (TSLA)
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Solar City Corp. (SCTY) is set to report FQ4 2013 earnings before the market opens on Monday, March 3rd. Solar City is a solar energy company which provides solar power for private homes, businesses, and builds charging stations for electric cars. Elon Musk, CEO of Tesla (NASDAQ:TSLA) and Spacex, is the chairman of the board and he pitched the idea for the company to his two cousins who are the founders.

This week Elon Musk unveiled plans to build a massive $5 billion giga factory to produce lithium ion battery packs for Tesla electric cars which will also manufacture stationary battery packs for Solar City and the solar industry. Lithium ion battery pack production was a limiting constraint on the sale of Tesla vehicles and mass production of stationary battery packs will reduce the costs in the solar industry and may be a game changer helping the company thrive at scale which is something SCTY has struggled to do profitably thus far. Here's what investors expect from Solar City Monday morning.

The information below is derived from data submitted to the platform by a set of Buy Side and Independent analyst contributors.image

(Click Here to see Estimates and Interactive Features for Solar City)

The current Wall Street consensus expectation is for SCTY to report -56c EPS and $44.88M revenue while the current consensus from 19 Buy Side and Independent contributing analysts is -52c EPS and $45.45M in revenue. This quarter the buy-side, as represented by the community, is expecting Solar City to beat the Wall Street consensus on both EPS and revenue.

Over the previous 2 quarters for which there is data, the consensus from has been more accurate than Wall Street in predicting Solar City's EPS and revenue once and twice respectively. By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students, and non professional investors, Estimize has created a data set that is up to 69.5% more accurate than Wall Street, but more importantly, it does a better job of representing the market's actual expectations. It has been confirmed by an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus.

The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case we are seeing a smaller differential between the two groups.image

The distribution of estimates published by analysts on the platform range from -47c to -62c EPS and $43.65M to $49.64M in revenues. This quarter we're seeing a smaller distribution of estimates for Solar City.

The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A narrower distribution of estimates signaling more agreement in the market, which could mean less volatility post earnings.

Both a shrinking delta between Wall Street and Estimize and a more narrow range of estimates than usual are both indicators that views from investors and Wall Street are more convergent compared to previous quarters.image

Over the past 4 months the Wall Street EPS consensus fell from -49c to -56c while the Estimize consensus rose from -54c to -52c. Over the same period of time the Wall Street revenue consensus increased from $43.72M to $44.88M while the Estimize consensus shot up from $44.11M to $45.45M. Timeliness is correlated with accuracy, and at the end of the period we saw surging analyst revenue revisions which are often a bullish indicator.image

The analyst with the highest estimate confidence rating this quarter is TheArmoTrader, who projects -50c EPS and $40.01M in revenue. In the Winter 2014 season TheArmoTrader is rated as the 92nd best analyst and is ranked 34th overall among over 3,950 contributing analysts. Estimate confidence ratings are calculated through algorithms developed by deep quantitative research which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case TheArmoTrader is expecting Solar City to beat the Estimize consensus on EPS and come up about 1% short on revenue.

While some analysts are optimistic about the giga factory and how a thriving electric car market may help Solar City in the future, the company still has a long way to go to achieve profitability. This quarter Wall Street is expecting Solar City to report 78% growth in year over year sales and contributing analysts on the platform have even higher expectations than that. Solar energy is an exciting and potentially revolutionary field but the industry still has a ways to go before large scale adoption of the technology becomes feasible.

Disclosure: No positions