SolarCity's Team, Scale And Experience Make The Stock A Buy: Baird

SolarCity Corp SCTY recently announced several financing transactions. Baird’s Ben Kallo upgrading the rating for the company to Outperform, while maintained the price target at $37. The analyst commented that the financing transactions would boost balance sheet, further project cost reductions are likely to open new markets.

“We believe negative sentiment is overdone on one of the leading U.S. rooftop installer, and think shares are attractive at current levels,” analyst Ben Kallo wrote.

Regulatory Worries Overdone

SolarCity’s shares have lost ~55 percent year-to-date, on concerns over net metering and the company’s ability to obtain financing. Kallo believes SolarCity is poised for growth, supported by the recent ITC extension, declining system costs, and access to capital markets. He added that the recent financing transactions indicate SolarCity’s access to the capital markets, “which should help quell investors' concerns about project financing.”

Cost Reductions

The analyst expects module oversupply to help lower system costs in the back half of 2016. He stated, “Although it remains unclear if module oversupply will occur, several Chinese producers have indicated module prices could decline ~5%-10% in 2H:16.” SolarCity would benefit from this, since it currently uses third-party modules, and may generate better project returns.

There are continued concerns related to SolarCity’s balance sheet. Kallo believes the company should issue equity to remove the stock overhang as well as provide a cushion to fund operations.