Why Investors are Nervous About First Solar, SolarCity Earnings

Since coming public in December of 2012, SolarCity’s stock stands about four times above its IPO price. Good, but at one time it was more than six times better than its IPO price.

In the same nearly three-year time frame, First Solar has added 50% to its value, but the price has been trending down since about April. For the year to date, First Solar stock trades down more than 9%, while SolarCity shares trade down nearly 29%.

Among analysts, the five most recent calls on First Solar are heavily positive:

• Baird reiterated an Outperform rating with a $69 price target.
• Avondale Partners initiated coverage with a Market Perform rating and a price target of $50.
• Deutsche Bank reiterated a Buy rating.
• Janney initiated coverage with a Buy rating and $77 price target.
• Oppenheimer initiated coverage with an Outperform rating and a $61 price target.

The view on SolarCity is more mixed:

• Baird reiterated a Buy rating but cut the price target from $73 to $68.
• Roth Capital maintained a Buy rating but cut the price target from $98 to $70.
• Axiom Securities initiated coverage with a Sell rating.
• Stifel initiated coverage with a Buy rating and a $64 price target.
• Credit Suisse reiterated an Outperform rating.

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Short interest has been rising in SolarCity stock, although in the two-week period ending October 15 short interest was down about 2.4 million shares below its 12-month peak of around 28.5 million in mid-August. Nearly 44% of SolarCity’s stock is short, and well-known short seller Jim Chanos of Kynikos Associates is among the large short positions.

First Solar’s short interest has settled at around 5.9 million shares, about 8% of the company’s float. Short interest in First Solar reached a 12-month peak of around 9.3 million shares in February.

Analysts are not expecting much from SolarCity and that’s what is likely to be delivered. Another quarter of losses on much higher revenues. All that indicates is that costs are running way too high and must be brought down or that SolarCity needs to raise its contract prices to cover its costs. Neither is a particularly happy outcome for the company.

SolarCity stock traded up nearly 1% just after noon Thursday, at $38.69 in a 52-week range of $34.65 to $63.79. The consensus price target on the stock is $74.13.

First Solar stock traded down fractionally, at $50.83 in a 52-week range of $39.18 to $65.50. The consensus price target here is $62.59.

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