Needham Analysts Met With SolarCity Management; Here's What Happened

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Needham recently hosted investor meetings for SolarCity Corp SCTY’s Vice President of Investor Relations, Aaron Chew, and the newly selected Senior Vice President of Business Development and Investor Relations, Radford Small.

In a report issued Monday, analysts Y. Edwin Mok and Kimberly Donovan provide some takeaways from these encounters, from which they left feeling optimistic, especially regarding the company’s cost advantages and competitive position in the U.S. residential market.

While the experts “continue to see the risk for lower pricing coming from loan-based offerings,” they believe SolarCity is structurally better placed in 2017 and beyond, after the ITC falloff.

Furthermore, Mok and Donovan think the stock will continue to trade at a discount to its fair value on the back of several longer-term risks, until a more tangible catalyst materializes.

Below are five issues the analysts highlight following the meetings with management:

1) Management thinks the company is undervalued when its DevCo and its PowerCo are separated. While the analysts agree regarding the stock’s undervaluation, they see this discount as more structural – at least until the ITC falloff in 2017.

2) Changing to a CAFD-like metric augments visibility to value creation but puts the company “against tough comps.”

3) Growth could be driven by international expansion and storage starting next year.

4) “Solar Asset-Backed Securitization (ABS) is a competitive advantage.” The management’s target to issue more ABS this year is seen as critical to fund SolarCity’s growth.

5) A Yieldco offering seems unlikely, at least before 2017.

 

Needham maintains a Hold rating on shares of SolarCity

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Posted In: Analyst ColorLong IdeasReiterationAnalyst RatingsMoversTechTrading IdeasAaron ChewKimberly DonovanNeedhamRadford SmallY. Edwin Mok
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