Bernstein: Buy SolarCity Now, It's Worth $69

• In a report issued Thursday, Bernstein analyst Hugh Wynne and his team upgraded their rating on shares of SolarCity Corp SCTY from Market-Perform to Outperform.
• The experts also boosted their price target from $36 to $69.
• The note explained the upgrade responded to the extension of the 30 percent solar ITC through 2021 and the announcement of the extension of an equally important ratepayer subsidy in California.

On Thursday, Bernstein analyst Hugh Wynne and his team upgraded SolarCity to Outperform, with a target price of $69. The promotion responded to a couple of “highly favorable regulatory developments this week: the extension of the federal investment tax credit (ITC) for solar installations, and the continuation of net energy metering (NEM) in California past its current 2017 expiration date.”

The extension of both these subsidies will extend SolarCity’s “enviable economic situation, realizing value for its installations well in excess of cost, and recouping its entire upfront investment in under a year,” the experts assured.

The report continued to explain that the decline in the solar ITC to 10 percent, as fixed by current law, would have diminished the availability of tax equity financing by roughly $1.00/Watt. The experts estimate the benefit of the ITC extension –for SolarCity- to be at ~$0.95-1.00/Watt over 2017-2019. They then model a decline to ~$0.85/Watt in 2020 and ~$0.65/Watt in 2021.

Consequently, each year of ITC extension will represent $1.0-1.3 billion for the company, “when discounted back to the end of 2016 at an estimated cost of equity of 12.5% -- the equivalent of $10-13 per SCTY share.”

Moreover, the analysts calculated the ITC extension through 2021 would be worth ~$50-55 per share, although not all of this benefit is likely to be captured by the company. In addition, California’s extension of net metering further protects the company’s economics.

However, they noted finally, the risk of SolarCity’s economics being eroded by changes in state NEM policies still exists.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.