JPMorgan Slashes 2017 Megawatts Estimate For SolarCity

Paul Coster, an alternative energy analyst with JPMorgan, still expects the SolarCity Corp SCTY merger with Tesla Motors Inc TSLA to proceed as planned but if the deal falls through, SolarCity will face higher discount rates for future capital raises and a "compromising" growth prospect.

In a report published Monday, Coster felt it prudent to revise his 2017 estimates for SolarCity. Specifically, the analyst is assuming SolarCity's discount rate increases by 100 basis points without an acquisition; this would weigh on its NPV/w and growth.

Related Link: Gordon Johnson Warns Of 'Burgeoning Risk' To SolarCity/Tesla Deal Closure

Coster lowered his fiscal 2017 MW additions to 996, which is up 6 percent year-over-year but doesn't compare favorably to his prior estimate of 1,152. The analyst's year-end 2017 pretax unlevered NPV remaining for the PowreCo was also reduced to $6.2 billion from $6.8 billion.

Coster cautioned that it's "reasonable to assume" MW installations could slow even further as the company's discount rate increases, which would drag down SolarCity's stock price even further as a standalone entity.

Coster also lowered his price target on SolarCity's stock (Neutral rated) as a standalone company to $21 from a previous $25, although a fundamental analysis yields an even lower valuation of $19 per share.

Bottom line, Coster suggested investors remain on the sidelines in the event that the SolarCity-Tesla deal falls through and the discount rate for SolarCity's new MW rises above expectations.