Shares of SolarCity Respond to Goldman Sachs Upgrade

In a report published Monday, Goldman Sachs analyst Brian Lee analyzed the 2014 outlook and solar energy. Lee added

to a top pick for 2014 and upgraded the company from Neutral to Buy with a $15.00 price target increase to $80.00. Goldman Sachs noted SolarCity's outperformance in 2013, up 376% versus RUT up 37%, and sees further gains. Lee noted that the company is “as well positioned as any solar company to capitalize on fast growth in the rooftop market, where its leading market share is growing in a 40GW medium-term opportunity in the US resi segment alone. We forecast a 50%-60% volume CAGR for SolarCity through 2016, ahead of 45% market growth. Moreover, we see SolarCity's leasing model providing leverage to attractive “own and operate” economics via contracted, recurring and long-term cash flows that we estimate provide intrinsic value of c.$40/share, even in a no-growth scenario through 2016.” Three key catalysts include solar asset-backed securities (ABS), retained value above $2 per watt, and new tax equity funding and investors. Lee further commented that although the initial ABS issue last year was small at $50 million, “the sub-5% yield was lower than expected and bodes well for future ABS offerings, which we see as catalysts in 1H14 on the back of increasing scale and potentially lower yields.” The analyst estimates the company's securitization capacity in 2014 at over $340 million and could double to over $700 million by 2016. This would drive up $0.40 of EPS of annual interest expense savings. Goldman Sachs added SolarCity to their Conviction List. Shares of SolarCity closed at $59.27 on Friday and have traded as high as $67.14, up 13.278%.