SolarCity Faces Clear Near-Term Capital Needs; Oppenheimer Cuts Target To $26

Oppenheimer initiated coverage of solar energy companies Sunrun Inc RUN and Vivint Solar Inc VSLR. The analysts argued they continue to perceive a substantial market opportunity for U.S. residential solar energy. Even further, they noticed this opportunity is now enlarged by rapidly declining energy storage costs.

On the other hand, the experts pointed out several “risks to the business model including policy and growth of direct ownership solar systems.”

Following these initiations, Oppenheimer analysts decided to reiterate an Outperform rating on SolarCity Corp SCTY, but trimming their price target from $27 to $26. The company “faces clear near-term capital needs and will need to accelerate the pace of capital recycling while significantly lowering cost per watt to generate positive adjusted FCF over our investment horizon.”

The firm’s investment thesis and price target are based on the following key points:

• As the company faces near-term capital needs, the experts “are looking for the company to upsize its aggregation facility in the next one to two quarters while refinancing 400MW of seasoned assets.”
• “Reaching positive adjusted FCF requires faster capital recycling, cost reduction.”
• Direct sales growth may pose a big challenge for SolarCity’s business model.
• While the policy struggle will probably remain a headwind for the foreseeable future, energy storage capacity ameliorations provide room for upside.