If you’re looking for a growth-oriented energy name, then look no further SolarCity Corp. (NASDAQ: SCTY), which is one of a handful of operations in the quickly expanding solar energy sector.
The San Mateo-based business hasn’t generated a single dollar of earnings in its eight-year existence—but revenues are climbing. Between 2009 and 2013 revenues increased by 411%, from $34 million to $174 million, according to S&P Capital IQ.
Despite the lack of earnings, Ben Kallo, an analyst with Baird Equity Research, is a bullish on this stock and thinks that now, after a 34% drop between February 26 and April 21, is a great time to buy in.
Kallo, who upgraded the stock to outperform on April 17, points out that the company has expanded its sales force and, as a result, the first quarter of 2014 will be its best quarter ever.
He also thinks that we’ll see more installations due to increased home-building in the U.S., and more rooftop replacements. “The U.S. rooftop market… will likely undergo a boom over the next several years,” he wrote in his upgrade report.
Make no mistake, this is not a near-term profit story, says Kallo, but it can be a good long-term play if you’re willing to wait out this growth phase. Until 2017, the company is going to take advantage of tax incentives to install as many megawatts of power that it can. It will also likely spend aggressively on sales and marketing, he says.
After 2017, when its expected the tax environment will become less favoruable, it will reduce its sales spend and focus on collecting recurring income — it allows customers to install panels at no cost, but they then have to pay monthly fees for up to two decades. Kallo likes this model as it makes solar more accessible to the average homeowner.
Earnings will likely come once it transitions into a revenue collecting operation. Still, the stock price should do well over the next year. The stock is trading at $56 a share, but Kallo thinks it could get to $75 in the next 12-months. Longer-term it may even be able to hit $128 a share, he says. He thinks it could deploy 600 megawatts of power annually between 2018 to 2027, up from around 100 megawatts today.
While investors should expect more ups and downs going forward, if you believe in solar power like Kallo does, then SolarCity will provide great returns and, one day, great profits.