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Why Shares of Vivint Solar, Inc. Popped 59% in 2017

By Travis Hoium - Jan 15, 2018 at 7:39AM

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Vivint Solar survived a rough 2017, and that was enough to send its stock soaring.

What happened 

Shares of solar installer Vivint Solar, Inc. (VSLR) jumped 59% in 2017, according to data from S&P Global Market Intelligence, in a volatile year of trading. There were some positive signs for the installer, but there's still a long road ahead to a full recovery. 

So what 

Vivint's operations have been steady in 2017, slowly transitioning to more system sales instead of leases and focusing on higher-margin customers. Where shares really spiked is when management started highlighting the fact that there's millions in value sitting on the balance sheet ready to be exploited. At the end of the third quarter, there was $723 million of net estimated retained value on the balance sheet, or $6.30 per share. This should indicate the value already contracted. 

Worker installing a solar system on a roof.

Image source: Getty Images.

What management could do is sell some of those expected cash flows in securitization deals, raising cash short-term. But until it does the value will only be an estimate for investors. 

The reason shares haven't spiked higher, toward the $6.30 mark, is that Vivint's business may be getting weaker. Potential solar tariffs by the Trump administration could raise prices, which will shrink either margin or Vivint Solar's addressable market. Then there's the fact that Sunrun (RUN 2.05%) has taken market share in residential solar as Tesla (TSLA -6.75%) has been slowly de-emphasizing its solar business. That's a vacuum Vivint Solar could have filled. 

Now what 

Vivint Solar is still one of the top residential solar installers in the U.S. and has a tremendous amount of value on the balance sheet. If management can unlock that value and build a sustainable installation business that can generate cash flow on its own in 2018, that could keep shares moving higher. But the ride could be bumpy, something that always seems to hold true for solar investors. 

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Stocks Mentioned

Vivint Solar, Inc. Stock Quote
Vivint Solar, Inc.
VSLR
Tesla, Inc. Stock Quote
Tesla, Inc.
TSLA
$710.19 (-6.75%) $-51.42
Sunrun Inc. Stock Quote
Sunrun Inc.
RUN
$22.41 (2.05%) $0.45

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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