Baird Upgrades SolarCity After 35% Pullback In Share Price

Analyst Ben Kallo at Baird Equity Research on Thursday, April 17, 2014, upgraded SolarCity SCTY from Neutral to Outperform and maintained a $71 price target.

Shares of the company are up $1.13 or 2.01 percent to $57.24 per share. 

The firm cited a pullback of about 35 percent in the share price as a reason contributing to its price target. The firm continued, “in our view, on the stock most levered to the U.S. rooftop market, which will likely undergo a boom over the next several years. SCTY's cost reductions and
scale continue to strengthen its position in the market. Additionally, innovative financing products, such as solar ABS', provide relatively low-cost capital for SCTY to capitalize on the expansive U.S. greenfield opportunity.”

Baird Equity Research predicts the first quarter to have record bookings and booking to sequentially increase after that throughout the year. Another major factor is that further cost reductions should enable significant retained value upon ITC expiration.

The firm's 75.00 price target is based off of its estimates of the net present value of SCTY's current contracted projects and its estimates of projects deployed from 2014 through 2017. The firm also stated, “SCTY is a long-term cash flow story, not a near-term profitability story.”

Baird Equity Research has noted the following as potential risks:

• Elimination or lowered caps on net metering.
• Adverse changes to tax incentives encouraging solar power would negatively impact tax equity market.
• Decision by the U.S. Treasury Department or IRS that the fair value of SCTY's systems is below what they claimed for tax credit/grant purposes.