Is SolarCity’s Deal with Goldman Sachs Indicative of a Solar Revival?

Solar City Off To A Good Start As Growth Prospects Brighten

Solar City Off To A Good Start As Growth Prospects Brighten

Solar City Off To A Good Start As Growth Prospects Brighten

Solar City remains up over 50% barely a month after its IPO as rebounding housing sector presents unimaginable growth prospects for the emerging growth company

The U.S renewable energy sector is growing at a commendable rate. Going by the current growth rate, reports show that renewable energy will constitute 1/3 of new electricity added to the national grid within three years.

This snapshot explains the huge influx of new entrants into the industry. Not only do the growth prospects present a good incentive for companies but the whole idea of alternative energy sits well with ardent environmentalists.  Solar City (NASDAQ: SCTY), which recently went public through an IPO, is one of the latest names to send ripples down the renewable energy segment. The San Mateo-based company went public in mid-December with a starting price of around $8. At the time of writing, the stock was trading at around $16, representing a 100 percent gain on the share price barely a month after the IPO.

As far as growth goes, Solar City’s prospects couldn’t get any better. Its track record and business model lights up (pun intended) the future. Going by track record, the renewable energy company has, over the past three years, managed to grow its top line in a consistent and laudable fashion. In 2009, Solar City managed to raise revenue of $36.2 million. This figure edged up 64.3 percent to $59.5 million in 2011 and further increased to a triple digit $103.38 million in 2012. Considering broader market conditions in the alternative energy segment, it would be right to assume that the increased revenue was attributable to larger sales volumes and not price increments.

Targeting rebounding housing sector a good play

As we highlighted in our write up on Beazer Homes (NYSE: BZH) late last year, the housing sector is rebounding. In fact, we even had takeaways from Buffet’s interview with CNBC, where the renowned value investor noted that U.S home construction was trending upwards and that business tied to the construction sector would benefit.

Solar City seems to be capitalizing on this prevalent rebound. In the recent Las Vegas International Builders Show, Solar City unveiled a broader home program. This program will promote energy efficient homes by incorporating solar in new residential homes. Considering the upsurge in residential homes, Solar City’s program will be open to a large addressable market. Also, the high cost of building that accompanies any housing rebound will push many home construction companies toward cheaper options like solar energy. Putting this into perspective, Solar City will be able to ink more contracts and as such, will grow its revenue tremendously in the coming years. As of this writing, Solar City has forged partnerships with more than 30 homebuilders across the U.S, spanning an excess of 100 U.S communities. Some of the partnerships are with big wigs like Taylor Morrison and Shea Homes.

While the outlook is seemingly rosy, Solar City may face a few challenges; moreover with market penetration. Heavyweights like SolarWinds Inc. (NYSE: SWI) currently command a larger portion of the market and have stronger finances. Nonetheless, counsel from Tesla Motor’s Elon Musk, who is currently the chairman of the board at Solar City, may help. Elon Musk has vast experience in the alternative energy segment.

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  1. DanSlone
    Feb 02, 2013 - 09:04 PM

    My main caution about this or any solar company is the competition from cheap natural gas for electricity production right now. Solar is expensive, and what most people don’t realize is that solar panels wear out after several years (generally in the 15-20 range) and must be replaced. At the moment the savings on electricity is so minimal that a typical homeowner can’t recoup the installation costs before the panels have to be replaced. For now, the viability of solar will be all about the government subsidies.

    Reply
  2. Tyokunbo Abiola
    Tyokunbo
    Feb 20, 2013 - 02:06 PM

    Apart from government subsidies, SolarCity’s viability will rely on how fast the public takes to using solar panels. I don’t think this is anytime soon.

    Reply
  3. Khangelani Hlongwane
    konraad
    Feb 24, 2013 - 10:02 AM

    At the momemnt it is difficult for solar energy to compete with fossil fuels. There is a need more efficient energy conversion technologies. We also need to see the price of oil perhaps to more than $150 a gallon before this type of energy becomes viable

    Reply
  4. mrgambale@gmail.com
    Mar 04, 2013 - 10:23 PM

    Unfortunately I agree with everyone, in that, the move to solar panels is still far away. There has to be a catalyst to induce folks to switch to solar.

    Reply
  5. Innovictor
    Mar 05, 2013 - 04:03 AM

    Did anyone read the piece on “Environmental concerns for CECO in 2013″? Exactly the same sentiments: it would require a huge paradigm shift to consider solar energy over fossil fuels.

    Reply
  6. Brian Prescott
    Mar 31, 2013 - 01:45 PM

    Solar energy is one of the viable alternative energy options but the cost, despite all the glut in recent times, is still prohibitively high. Meanwhile, a constant pressure on natural gas prices means the playing field is tilted against solar energy.

    Reply
  7. Meiko Acebo
    meikoacebo
    Apr 26, 2013 - 05:53 AM

    seems like a good pick but pricey after the ipo run.

    Reply
  8. Lennox Yieke
    lyieke
    Apr 26, 2013 - 06:18 AM

    In addition to solar energy having a more futuristic slant compared with conventional fuel. The current price freefalls in natural gas will give solar stocks some room to grow

    Reply

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