Deutsche Bank Thinks SolarCity's Upcoming Financing Deals Will Boost Investors

Shares of SolarCity Corp SCTY have been under pressure on concerns over the company’s ability to raise $1 billion in financing as well as net metering cases in states like NV, AZ and MA. Deutsche Bank’s Vishal Shah maintained a Buy rating for the company, with a price target of $49. The analyst expects details of SolarCity’s equity financing to act as the next catalyst for shares.

Asset Sale Announcements Expected

Analyst Vishal Shah mentioned that SolarCity will need $3.4 billion of capital to achieve its 2016 installation targets of 1.25 GW. The company will need to arrange for $0.9 billion in the form of cash equity, $2.2 billion in the form of tax equity and $0.3 billion in the form of other debt instruments.

High costs of recent ABS transactions and the recent volatility in the high yield markets have raised investor concerns over SolarCity’s ability to achieve its installation targets for 2016.

Shah expects SolarCity to sell its operating assets at an 8-9 percent unlevered IRR. He added, “We expect the company to announce a series of these transactions which could result up to $0.9B of cash equity infusion over the next few quarters.”

Assuming SolarCity is able to successfully generate cash equity worth $1.30/W, tax equity of $1.77/W and another $0.20/W from rebates/residuals, the company could generate a gross profit of $0.50/W at a $2.70/W cost structure, the analyst stated.