Bernstein Says Wait For The Entry Point In Solar City; Starts At Market Perform

• SolarCity Corp SCTY shares are down 53 percent year-to-date, and are trading significantly below their 52-week high of $63.79.
• Bernstein’s Hugh Wynne initiated coverage if the company with a Market-perform rating and a price target of $30.
• Despite the substantial decline in SolarCity’s stock, the bottom has not yet been reached, and any pressure due to the CPUC's NEM decision could present a buying opportunity, Wynne said.

Analyst Hugh Wynne expects SolarCity’s stock to continue to underperform for the rest of 2015. The company’s shares have plunged about 55 percent since the end of July, coming under pressure due to declining oil and natural gas prices and poor news flow.

Wynne added, however, the share price has not yet bottomed. The California Public Utilities Commission, or CPUC, is scheduled to announce its decision on the future of NEM in the state before yearend. An adverse decision would substantially weaken the economics of distributed solar in the company’s largest market.

A change in California’s NEM policy would not only impact the company’s largest market, but also influence debates in other states, including Arizona, where regulators would review NEM in 2016. Given the dire consequences, an adverse decision by CPUC would exert pressure on SolarCity’s shares, despite their substantial decline in 2H15.

Given the decline in SolarCity’s shares, any further decline due to the CPUC's NEM decision could represent a buying opportunity for the stock, the analyst mentioned.

In the report Bernstein noted, “Due to tax and regulatory subsidies, SCTY currently realizes value for its installations well in excess of cost, and recoups its entire upfront investment in under a year…This enviable situation is unlikely to last. The ITC [Investment Tax Credit] is slated to drop to 10% in 2017, and we expect it to fall as scheduled.”