SolarCity's $227M Financing Is A 'Major Catalyst'; Avondale Says Buy The Stock

SolarCity Corp SCTY has announced a $227 million cash equity raise, a move that could ease the worries of traders concerned with the company’s softening guidance. Avondale Partners analyst Michael Morosi sees the cash financing as a “major catalyst” for the stock.

According to Morosi, market concerns over SolarCity’s growth are misplaced to begin with. Avondale sees some risk to the company’s 40 percent growth target, especially after such a weak Q1. However, he pointed out that SolarCity’s stock is not valued as a growth stock.

“With ~$15/share of net asset value on the balance sheet, the company’s DevCo is valued at 4x EV/Adjusted EBIT, which is not exactly consistent with a 40 percent grower,” Morosi explained.

SolarCity’s latest cash equity financing comes on the heels of more than $1 billion in capital that the company has raised in the past two months and will serve to improve the company’s cash flows and de-risk its portfolio.

Morosi believes the company is “firing on all cylinders” and that its successful financing endeavors should result in a re-rating of its stock. Avondale maintains a Market Outperform rating on SolarCity and a $40 price target for the stock.

SolarCity is down 46.0 percent so far in 2016.

Disclosure: The author holds no position in the stocks mentioned.

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