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SolarCity (SCTY): What Awaits the Stock in Q3 Earnings?

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Solar major SolarCity Corp. is expected to release third-quarter 2016 results on Nov 10. In the preceding quarter, the company delivered a positive earnings surprise of 4.53%. Let’s see how things are shaping up for this announcement.

Factors at Play

During its second-quarter conference call, SolarCity said that customer acquisition costs had declined significantly in the quarter, underlining a trend that it expected to continue into the third quarter as well.

Further, it revealed expectations of a sequential increase in cash balance in the third quarter. The company has received approval for all-tax equity funds from a large aggregation facility in the to-be-reported quarter, which will drive it cash balance improvement.

However, SolarCity stated that it expects non-GAAP loss per share in the $2.55–$2.65 band, (wider than the third-quarter 2015 loss of $2.10) for the third quarter. Quarterly loss would be wider due to a continued rise in operating expenses.

Notably, on Aug 1, Tesla (TSLA - Free Report) inked a deal to acquire SolarCity for $2.6 billion in an all-stock transaction. Shareholders of both the companies are set to meet and vote on the proposed merger between the two companies on Nov 17.

Earnings Whispers

Our proven model does not conclusively show that SolarCity will beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP:  The Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -8.51%. This is because the Most Accurate estimate stands at loss of $2.55, while the Zacks Consensus Estimate is pegged at a loss of $2.35.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Though SolarCity’s Zacks Rank #2 increases the predictive power of ESP, we need a positive ESP to be confident about an earnings beat.

Note that we caution against stocks with a Zacks Rank #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

SOLARCITY CORP Price and EPS Surprise



A Peer Release

First Solar Inc. (FSLR - Free Report) reported third-quarter 2016 earnings of $1.22 a share, beating the Zacks Consensus Estimate of 69 cents by a wide 76.8%.

Upcoming Releases

Sunrun Inc. (RUN - Free Report) is slated to release third-quarter 2016 results on Nov 10. The Zacks Consensus Estimate is pegged at a loss of 43 cents. The company has a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

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