SolarCity Corp (NASDAQ:SCTY) stock tanked more than six percent on Thursday, January 21. After an impressive surge toward the end of 2015, SCTY stock has been plunging quite badly since entering 2016. Could it be over for the solar company?
Not really. In fact, the company is just getting started. Investors who want to bet on the renewable energy sector should take a serious look at SolarCity stock.
Let me explain…
SCTY Stock: SolarCity Launches Referral Program for Nonprofits
On Wednesday, January 20, SolarCity announced the launch of “SunRaising,” a national referral program for nonprofit organizations. Under the program, each time a member of a SunRaising partner organization signs up, SolarCity will donate $200.00 to that organization. Homeowners who signed up through a SunRaising partner will also enjoy their system’s first month of power for free from SolarCity. (Source: “SolarCity Introduces SunRaising, a Solar Referral Program for Nonprofits,” SolarCity Corp, January 20, 2016.)
This is a great move by SolarCity, because by raising funds for nonprofit organizations, people get one more reason to move to solar energy. Right now, the program has more than 100 nonprofit organizations on board, including food banks, hospitals, booster clubs, community centers, schools, and recreational groups.
SolarCity has always been a smart company. I mean, the company was founded based on a suggestion by the founder’s cousin, Elon Musk.
The first smart decision made by SolarCity was to target residential customers. You see, despite being much smaller compared to businesses and utilities, residential customers actually represent the best potential adopters of solar energy. This is because electricity rates are highest at the residential level. Therefore, households are more willing to move to solar energy if they see great savings. The nature of residential consumers’ high electricity bills from traditional utilities could also bring greater profitability for SolarCity.
One of the obstacles to solar energy’s adoption at the residential level was the high upfront cost. Even though households could see significant savings in the future, they might not want to make the hefty investment at the start. That’s where SolarCity made its really smart move.
The company offers “Power Purchase Agreement” plans (PPAs), which don’t require any payment upfront. Rather, they let consumers buy electricity from SolarCity at a very low price. The plan certainly worked; excluding system sales, the company had 288,992 cumulative energy contracts by the end of third-quarter 2015. (Source: “SolarCity Investor Presentation,” SolarCity Corp, November 2015.)
Recently, the renewable energy industry has welcomed two pieces of great news on the policy front.
First were the results of the United Nations COP 21 Summit in Paris, where 196 countries signed an agreement to limit the rise in global mean temperatures to two degrees Celsius (3.6 degrees Fahrenheit) by the end of the century. This could lead to less reliance on fossil fuels, and higher demand for renewable energy companies, such as SolarCity.
Second, the U.S. government decided to extend the 30% federal tax credit for those who install renewable energy systems in their homes and offices, adding incentive for consumers to choose SolarCity over traditional utility companies.
The Bottom Line on SCTY Stock
Analysts have also noticed the potential of SCTY stock. On January 14, Bernstein Research analyst Hugh Wynne reiterated his “Buy” rating on the stock and gave it a $62.00 price target. On December 30, Avondale analyst Michael Morosi also maintained the “Buy” rating on SCTY stock with a price target of $65.00, which would represent a nearly 100% upside potential from today’s price. (Source: “Company Update: SolarCity Corp Introduces SunRaising, a Solar Referral Program for Nonprofits,” Smarter Analyst, January 20, 2016.)
At the end of the day, remember that Elon Musk is capable of turning some incredible ideas into reality. I mean, he even managed to land a rocket that came back from space; do you think he’s going to have a problem putting solar panels on your roof?
With Elon Musk, government tax incentives, and a UN agreement on SolarCity Corp’s side, the future looks bright for SCTY stock.