Morgan Stanley Gets 'Incrementally Positive' On SolarCity: Here's Why

In a report published Monday, Morgan Stanley analyst Stephen C Byrd maintained an Equal-weight rating and price target of $93 on SolarCity Corp SCTY. Byrd mentioned that recent developments have made him more positive on the stock, suggesting 60 percent upside to the valuation.

Recent Developments

Among the recent developments, the analyst mentioned the company provided an “encouraging 2Q15 update last week, while announcing that it had exceeded its installation guidance for the quarter. SolarCity also stated that it was making progress in expanding into the small and medium commercial-scale solar market.

Secondly, the decline in the ITC from 30 percent to 10 percent in 2017 is likely to be a long-term risk to SolarCity’s growth potential, dampening the company’s growth in 2017, relative to 2016.

However, according to Byrd, “[W]e believe SCTY can off-set the loss of tax equity with cost declines and incremental ABS proceeds. We expect returns to remain attractive… in 2017.”

SolarCity’s international expansion is also expected to drive potential upside, while the partnership with Tesla Motor In. TSLA has the potential to drive incremental margins.

“Despite attractive long-term fundamentals, we tactically caution that near-term market expectations for SCTY appear robust and competition from a number of smaller new entrants could bring near-term risks,” the Morgan Stanley report added.

Q2 Results

In June, the company reported its Q2 results with a loss of $22.4 million or loss per share of $0.23. However, adjusted for non-recurring gains, the EPS stood at $1.61. Revenue for the quarter came in ahead of the consensus, at $102.8 million.

For the September quarter, SolarCity guided to loss per share in the range of $2.15 to $2.05.