Is SolarCity Really Worth $65/Share? This Analyst Thinks So

In a report published Tuesday, Northland Capital Markets initiated coverage of

with an Outperform rating and a price target of $65, saying that the company has "significant scale advantages" that position it to benefit from a robust US solar installation market "through and beyond 2016." In the report Northland Capital Markets noted, "We believe SCTY will achieve 1M customer target by mid-2018, as distributed PV is economically competitive throughout U.S. even at lower federal ITC. We believe that declining installed costs, rising electricity prices, and low cost of capital will create large addressable solar demand even with a decline in federal incentives." The analysts expect project NPV to shrink by one-third in 2017, despite a 10 percent decline in installed cost and 12 percent decline in total blended cost by 4Q17. However, the company should continue to grow installations and gain market share, thanks to its scale and financing advantages. SolarCity would stand to benefit in terms of cost-competitiveness, if it is able to execute to its Silevo capacity and efficiency targets. However, the technology is yet unproven at scale and the company would need to develop processes, tooling and n-type mono wafer supply necessary to support 1GW of capacity. Northland Capital Markets estimates that the company may have boosted its cash flows from 2014 projects by 25 percent as an alternative use of capital. While stating that the leadership has access to "unique growth opportunities," the analysts wrote, "We are modeling SCTY to require $16.3B in financing over the next three years, vs. $1.5Bin 2014. This acceleration in capital velocity will be critical to fund SCTY's growth. We would view any slowdown in capital availability as a headwind."