SolarCity Selloff Is 'Excessive,' Bernstein's Wynne Says

• SolarCity Corp SCTY shares plummeted 32 percent in pre-market trading on February 10.
• Bernstein's Hugh Wynne maintained an Outperform rating for the company, with a price target of $62.
• While SolarCity’s Q4 results raise concerns, the aftermarket pullback appears excessive, Wynne stated.

SolarCity’s shares tumbled in aftermarket trading, following the company’s Q4 earnings. While reporting installations for the quarter that were below guidance, SolarCity guided to 180MW installations for Q1 2016, up merely 18 percent from 153MW in Q1 2015.

The company kept its guidance for 2016 unchanged at 1,250MW, representing about 44 percent y/y growth. “Lower than expected volumes fed into existing investor fears over SCTY's ability to meet its 2016 growth target and maintain growth post-2016 even at that year's diminished level,” analyst Hugh Wynne wrote.

SolarCity attributed the Q4 installation shortfall in part to the shutdown of its Nevada operations in late December. “Though Nevada may be an isolated headwind, it is also an ongoing one. And though the reduction in working capital from the changes to commercial installations is positive, it also illustrates the bumpy ride SCTY is likely to continue to face as it expands its commercial operations,” Wynne commented.

Despite these concerns, the severity of the negative market reaction appears unwarranted, the analyst said. He added that management’s full-year target seems to be achievable, even with Q1 installations at the guided 180MW. SolarCity has planned investments in sales starting in Q2, the required growth rate for installations seems feasible, albeit at higher costs, which would lower returns per watt.

“Including its January debt issuance, over the course 2015 SCTY raised an average of $2.73 per watt in tax equity and asset backed financing, slightly exceeding the $2.71 installed cost per watt that it achieved in Q4 2015. This rough balance bodes well for SCTY's ability to fund its growth in installations in 2016,” Wynne added.